Chapter 13 Bankruptcy & The Co-Debtor Stay

 The co-debtor stay applies in cases of Chapter 13 bankruptcy.  The co-debtor stays applies if the following requirements are met:

1) the primary debtor must have filed for relief under Chapter 13;
2) the debt must be a consumer debt, incurred by an individual for personal, family or household purposes;
3) the co-debtor must be an individual;
4) the co-debtor must not have become liable on the debt in the ordinary course of business;
5) the Chapter 13 case must not have been closed, dismissed or converted to a case under Chapter 7 or Chapter 11.

A tax debt is not a consumer debt.  Thus, the co-debtor stay does not apply.
A debt secured by real property is considered consumer debt in the Northern District of Illinois.  Thus, the co-debtor stay applies.

There are three grounds for relief from the co-debtor stay under Section 1301(c):
1) the co-debtor received the consideration for the claim held by the creditor;
2) the debtor’s plan does not propose to pay the claim in full;
3) the creditor’s interest would be irreparably harmed by the continuation of the co-debtor stay.

The key point in practice is that if you want the co-debtor stay to remain in place, you must be paying the creditor in full.  Thus, if a car is co-signed and you choose to pay less than what it owed through the plan (i.e. cram down of a car acquired more than 910 days prior to filing), the creditor can move to modify the stay and collect from the co-debtor.  So even if you have the ability to pay less than what is owed to a creditor, you should consider the effect it would have on the co-debtor.