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Ask Bankruptcy Attorney in Sacramento, Stockton, Fairfield, CA – Is Co-Signer Liable for Debt if I File Chapter 13 Bankruptcy?

If you have relatives, friends, or someone who co-signed or guaranteed a consumer debt for you, the "Automatic Stay" extends to codebtors of your consumer debts upon Chapter 13 Bankruptcy filing.  Creditors usually require a co-signer or guarantor for a debt because the primary borrower does not have sufficient income or assets to get approval on her own.  The co-signer is just as liable for the debt as the primary borrower.  This means that the creditor can collect or file a lawsuit for wage garnishment against either the co-signer or primary borrower.

Upon bankruptcy filing, Automatic Stay STOPS creditors from attempting to collect on the debt against the person filing for bankruptcy.  For Automatic Stay to extend to codebtor, codebtor must be liable on the consumer debt and to a third party and debtor filed a Chapter 13 Bankruptcy.  When "Codebtor Stay" comes into effect, creditors are prohibited from attempting to collect from codebtor during the life of the Chapter 13 Bankruptcy.

However, creditors can request the Bankruptcy Court in Sacramento or Modesto, California for Relief from "Codebtor Stay" if either of the following is true:

1.  codebtor actually received the consideration or benefits for the creditor's claim or debt;

2.  debtor's plan does not proposed to pay for the cosigned debt; or

3.  creditor's interest would be irreparably harmed by continuation of the codebtor stay.  For example, a rapidly decreasing value of collateral or property will be disposed of by debtor.

If the creditor is able to prove one of the above, the Bankruptcy Court must grant Relief from Codebtor Stay.  Thereby, creditors can pursue collection attempts against codebtors.

Even if the Lender does not request the Bankruptcy Court for Relief of Codebtor Stay, codebtor is still liable for the debt even after debtor successfully completed her Chapter 13 Bankruptcy and received a discharged on the debt if the debt is not paid-in-full in the Chapter 13 Bankruptcy Plan.

If you have any question on the effect of bankruptcy filing on codebtors, call Sacramento CA Bankruptcy Attorney for more information.