Cite as: Keith M. Lundin, Lundin On Chapter 13, § 67.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
A creditor is entitled to relief from the codebtor stay if the “creditor’s interest would be irreparably harmed by continuation of such stay.”1 To establish irreparable harm, the creditor must show something more than just delay in collection from the codebtor.2 Speculation that the codebtor might file bankruptcy or disappear during the Chapter 13 plan is not alone sufficient proof of irreparable harm.3
The creditor should be prepared to prove special circumstances relating to the nonfiling codebtor—for example, that the codebtor is the defendant in collection litigation in other courts, or the codebtor’s solvency is at risk because other creditors of the codebtor are not subject to any stay. Irreparable harm might be demonstrated by showing that the codebtor is disposing of assets or is moving from the jurisdiction. These are hard arguments to win when the debtor’s plan proposes to pay the creditor in full. Courts are understandably reluctant to allow relief to proceed against the codebtor when the creditor has only to wait for full payment from the debtor. In one of the few reported decisions finding irreparable harm, the creditor demonstrated that the codebtor died before the Chapter 13 petition and the creditor needed to act quickly to collect from the cosigner’s probate estate else the opportunity would disappear forever.4 In contrast, that the codebtor had a stroke and was in a nursing home was not irreparable harm when there was no evidence that the codebtor would be unable to make payments if the debtor defaulted.5
Irreparable harm justifying relief from the codebtor stay might consist of evidence that the proposed plan cannot be confirmed or consummated. For example, irreparable harm was found when one provision of a plan called for surrender of collateral, but another provision of the same plan prohibited the creditor from repossessing that collateral.6
The creditor asserting irreparable harm is cautioned to file a timely proof of claim. Absent an allowable claim, the creditor will have no right to distributions under the plan and will be hard-pressed to establish irreparable harm arising from its own lack of diligence.7
Debtors will occasionally propose a balloon payment or reaffirmation of a co-signed debt. It has been held that the creditor’s interest in collection from a codebtor is irreparably harmed when the debtor proposes a 21 percent payment during the plan with reaffirmation of the balance at the conclusion of payments under the plan.8
1 11 U.S.C. § 1301(c)(3).
2 Harris v. Fort Oglethorpe State Bank, 721 F.2d 1052 (6th Cir. 1983). Accord In re Daniels, No. 02-82083 13, 2003 WL 1701043, at *2 (Bankr. M.D.N.C. Mar. 13, 2003) (unpublished) (“Irreparable harm under section 1301(c)(3) cannot be shown merely by delay of payment.”).
3 Harris v. Fort Oglethorpe State Bank, 721 F.2d 1052 (6th Cir. 1983). Accord In re Daniels, No. 02-82083 13, 2003 WL 1701043, at *2 (Bankr. M.D.N.C. Mar. 13, 2003) (unpublished) (Creditor must present evidence that codebtor will be unable to make payments if the debtor defaults; “the creditor must show more than ‘merely speculative fears that may or may not materialize.’”).
4 In re Case, 148 B.R. 901, 904 (Bankr. W.D. Mo. 1992) (Creditor with co-signed claim is entitled to relief from the codebtor stay on the ground of “irreparable harm” under § 1301(c)(3) where the cosigner died before the filing of the Chapter 13 petition and the decedent estate of the cosigner is ready for distribution. If relief is not allowed, the probate estate will be distributed and the creditor faces “an unreasonable risk of dissipation of assets which may be used to pay its debt and to unreasonable collection expenses if it is forced to sue multiple beneficiaries to ultimately collect this debt.”).
5 In re Daniels, No. 02-82083 13, 2003 WL 1701043, at *2 (Bankr. M.D.N.C. Mar. 13, 2003) (unpublished) (“Without any evidence presented that indicates the Co-Debtor would be unable to make future payments in the event the Debtor defaults, this court will not find that irreparable harm exists so as to warrant the lifting of the co-debtor stay.”).
6 Central Fidelity Bank v. Cooper (In re Cooper), 116 B.R. 469 (Bankr. E.D. Va. 1990).
7 See Abraham & Straus v. Francis, 15 B.R. 998 (Bankr. E.D.N.Y. 1981). But see In re Pardue, 143 B.R. 434 (Bankr. E.D. Tex. 1992) (allowing relief from the codebtor stay where the creditor disabled itself to receive payment of postpetition interest and other charges by failing to file an accurate proof of claim).
8 Police Fed. Credit Union v. Holmes, 9 B.R. 454 (Bankr. D.D.C. 1981). See In re Fink, 115 B.R. 113 (Bankr. S.D. Ohio 1990) (Student loan commission need not prove irreparable harm to be entitled to relief from the stay when Chapter 13 plan proposes to pay only 10%, notwithstanding that the plan also provides that student loan debts will not be discharged at the completion of payments. Section 1301(c)(2) is independent of § 1301(c)(3).).