§ 8.13     Cosigner Problems
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 8.13, at ¶ ____, LundinOnChapter13.com (last visited __________).

Chapter 13 (and Chapter 12) has a special stay prohibiting the collection of debt from a cosigner.1 Consumer debtors often have obligations that have been cosigned or guaranteed or that are joint liabilities with nonfiling spouses, family members, coworkers or friends. The codebtor stay was intended to protect Chapter 13 debtors from the indirect pressure of collection action against a cosigner. It can have the incidental effect of insulating the co-obligor during the life of the plan.2


In a Chapter 7 or 11 case, it can be expected that the creditor with a guarantor or cosigner will immediately seek collection from the codebtor. If the debtor feels great pressure to retire the cosigned debt and is likely to do so in a Chapter 7 case even after discharge, Chapter 13 is an attractive alternative because the codebtor stay prohibits collection from the cosigner while the debtor repays the creditor through the plan. The statutory power to separately classify cosigned claims in a Chapter 13 plan, set out in 11 U.S.C. § 1322(b)(1), enhances the use of Chapter 13 to deal with codebtor problems.3


The codebtor stay protects only cosigners of consumer debts and only to the extent that the debtor received the consideration and proposes to pay the claim through the plan.4 Tax obligations, when there is a nonfiling spouse,5 and credit unions, when coworkers are often co-obligors, are situations that suggest the use of Chapter 13.


Notwithstanding many new exceptions to and limitations on the automatic stay added to the Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,6 the codebtor stay in § 1301 escaped the 2005 legislation unscathed.7 There will be situations when the codebtor stay in a Chapter 13 case is the only stay available to an individual debtor—for example, when the debtor has prior bankruptcy case(s) dismissed within a year.8


1.  11 U.S.C. § 1301. See § 65.1  Cosigners and Joint Obligors Are Protected, § 65.2  Consumer Debts Only, § 65.3  Codebtor Heaven after BAPCPA, § 65.4  Can Plan Enlarge Codebtor Stay?, § 65.5  Expiration of Codebtor Stay, § 66.1  Motion Practice, § 66.2  Automatic Relief under § 1301(d), § 66.3  Timing of Request for Relief, § 66.4  Burden of Proof, § 67.1  Codebtor Received the Consideration, § 67.2  Plan Does Not Pay Debt in Full, § 67.3  Postpetition Interest, Attorneys’ Fees, Costs and Other Charges, § 67.4  Can Creditor Collect Original Contract Payment from Codebtor?, § 67.5  Irreparable Harm and § 67.6  Annulment of Codebtor Stay.


2.  See § 65.1  Cosigners and Joint Obligors Are Protected.


3.  See § 87.3  Co-signed Debts.


4  See § 65.2  Consumer Debts Only, § 67.1  Codebtor Received the Consideration and § 67.2  Plan Does Not Pay Debt in Full.


5.  There is controversy whether taxes are “consumer debts” for purposes of the codebtor stay. See § 65.2  Consumer Debts Only.


6.  Pub. L. No. 109-8, 119 Stat. 23 (2005). See § 58.2  BAPCPA Shrank Stay.


7.  See § 65.3  Codebtor Heaven after BAPCPA.


8.  See 11 U.S.C. § 362(c)(3) and (c)(4), discussed in § 60.2  Which Stays Terminate?, § 61.1  When Does § 362(c)(4) Apply? and § 65.3  Codebtor Heaven after BAPCPA.