How does co-debtor stay work in Chapter 13 Bankruptcy?

Co-debtor stay is an important protection that is provided to debtors who file for Chapter 13 Bankruptcy in California. Co-debtor stay allows a debtor to protect a third-party from creditors. This is especially beneficial if the third party has co-signed a loan with the debtor or guaranteed a loan. When a debtor files for Chapter 13 Bankruptcy in California, the court enters an automatic stay that prohibits creditors from collecting debts from the filer. This helps debtors free up some financial breathing room, as they no longer need to worry about creditors contacting them directly. However, the automatic stay doesn’t protect third parties who have co-signed loans with the filer. That’s where co-debtor stay comes in. Co-debtor stay is an additional protection that only applies in Chapter 13 Bankruptcy and essentially expands the automatic stay to cover the co-signer or family member who has guaranteed a loan. This means that, while the debtor is enrolled in a payment plan to repay some of their debt, the co-signer or guarantor will not be contacted by creditors. Though co-debtor stay is meant to provide an added layer of protection for third parties, it is important to note that if the debtor’s repayment plan is not successful, the co-signer or guarantor will still be held responsible for the remaining debt. Therefore, it is important to understand that co-debtor stay is not a guarantee of protection and could still lead to financial trouble if the debtor’s case is not completed successfully.

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How does co-debtor stay work in Chapter 13 Bankruptcy?

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