Often, one person files bankruptcy but another person, like a spouse, chooses not to file a bankruptcy case although liable for some or all of the debts. Many prospective debtors, especially married couples, often consider other alternatives to jointly filing a bankruptcy case. Only legally married couples may file joint bankruptcy cases.
In a Chapter 7 case, a creditor may proceed against an individual who does not file a joint or separate bankruptcy case. § 1301 provides that a creditor may collect on a debt from a non-filing co-debtor in Chapter 7 and 11 bankruptcy cases. Thus, the automatic stay provides protection only for parties that actually file a Chapter 7 bankruptcy case. A creditor may proceed with collection activities against a co-debtor under Florida state law in this situation.
However, if a debtor files a Chapter 13 bankruptcy case, the automatic stay acts as a co-debtor stay and stops or enjoins actions to collect most debts from both the debtor and other non-filing parties, including a spouse. § 1301 of the Bankruptcy Code provides that a creditor may not take action to collect a debt unless the co-debtor became liable for the debt in the ordinary course of business. Thus, the co-debtor stay only applies to consumer debts, which are those incurred for personal rather than business purposes.
The public policy of the co-debtor stay is to prevent creditors from hindering a debtor’s attempts to reorganize by indirect pressure on the debtor to repay the debt. Any continuing collection activities against co-debtors is prohibited in Chapter 13 cases and, like any collection activity in violation of the automatic stay, subjects a creditor to sanctions under federal law.
Another advantage of the co-debtor stay is that if two people co-sign for an extension of credit to purchase an automobile and one of these debtors files a bankruptcy case although payments are current, typically, the non-filing individual may continue to make payments and retain the vehicle. If the debtor abandons the vehicle to his or her co-debtor, the latter may maintain payments as if the bankruptcy case was never filed.
The experienced South Florida bankruptcy attorneys are here to help you if your financial position necessitates the consideration of a bankruptcy case filing under Chapter 7, 11, or 13. To schedule a free consultation at any of our three conveniently located offices, contact Loan Lawyers today by calling 954-523-HELP (4357).