CHAPTER 13 ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME
Sub Chapter Officers, Administration and the Estate
Sec. 1301. Stay of action against codebtor
(a) Except as provided in subsections (b) and (c) of this section,
after the order for relief under this chapter, a creditor may not act,
or commence or continue any civil action, to collect all or any part of
a consumer debt of the debtor from any individual that is liable on such
debt with the debtor, or that secured such debt, unless--
(1) such individual became liable on or secured such debt in the
ordinary course of such individual's business; or
(2) the case is closed, dismissed, or converted to a case under
chapter 7 or 11 of this title.
(b) A creditor may present a negotiable instrument, and may give
notice of dishonor of such an instrument.
(c) On request of a party in interest and after notice and a
hearing, the court shall grant relief from the stay provided by
subsection (a) of this section with respect to a creditor, to the extent
(1) as between the debtor and the individual protected under
subsection (a) of this section, such individual received the
consideration for the claim held by such creditor;
(2) the plan filed by the debtor proposes not to pay such claim;
(3) such creditor's interest would be irreparably harmed by
continuation of such stay.
(d) Twenty days after the filing of a request under subsection
(c)(2) of this section for relief from the stay provided by subsection
(a) of this section, such stay is terminated with respect to the party
in interest making such request, unless the debtor or any individual
that is liable on such debt with the debtor files and serves upon such
party in interest a written objection to the taking of the proposed
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2645; Pub. L. 98-353, title III,
Secs. 313, 524, July 10, 1984, 98 Stat. 355, 388.)
Historical and Revision Notes
Section 1301 of the House amendment is identical with the provision
contained in section 1301 of the House bill and adopted by the Senate
amendment. Section 1301(c)(1) indicates that a basis for lifting the
stay is that the debtor did not receive consideration for the claim by
the creditor, or in other words, the debtor is really the ``codebtor.''
As with other sections in title 11, the standard of receiving
consideration is a general rule, but where two co-debtors have agreed to
share liabilities in a different manner than profits it is the
individual who does not ultimately bear the liability that is protected
by the stay under section 1301.
senate report no. 95-989
Subsection (a) automatically stays the holder of a claim based on a
consumer debt of the chapter 13 debtor from acting or proceeding in any
way, except as authorized pursuant to subsections (b) and (c), against
an individual or the property of an individual liable with the chapter
13 debtor, unless such codebtor became liable in the ordinary course of
his business, or unless the case is closed, dismissed, or converted to
Under the terms of the agreement with the codebtor who is not in
bankruptcy, the creditor has a right to collect all payments to the
extent they are not made by the debtor at the time they are due. To the
extent to which a chapter 13 plan does not propose to pay a creditor his
claims, the creditor may obtain relief from the court from the automatic
stay and collect such claims from the codebtor. Conversely, a codebtor
obtains the benefit of any payments made to the creditor under the plan.
If a debtor defaults on scheduled payments under the plan, then the
codebtor would be liable for the remaining deficiency; otherwise,
payments not made under the plan may never be made by the codebtor. The
obligation of the codebtor to make the creditor whole at the time
payments are due remains.
The automatic stay under this section pertains only to the
collection of a consumer debt, defined by section 101(7) of this title
to mean a debt incurred by an individual primarily for a personal,
family, or household purpose. Therefore, not all debts owed by a chapter
13 debtor will be subject to the stay of the codebtor, particularly
those business debts incurred by an individual with regular income, as
defined by section 101(24) of this title, engaged in business, that is
permitted by virtue of section 109(b) and section 1304 to obtain chapter
Subsection (b) excepts the giving of notice of dishonor of a
negotiable instrument from the reach of the codebtor stay.
Under subsection (c), if the codebtor has property out of which the
creditor's claim can be satisfied, the court can grant relief from the
stay absent the transfer of a security interest in that property by the
codebtor to the creditor. Correspondingly, if there is reasonable cause
to believe that property is about to be disposed of by the codebtor
which could be used to satisfy his obligation to the creditor, the court
should lift the stay to allow the creditor to perfect his rights against
such property. Likewise, if property is subject to rapid depreciation or
decrease in value the stay should be lifted to allow the creditor to
protect his rights to reach such property. Otherwise, the creditor's
interest would be irreparably harmed by such stay. Property which could
be used to satisfy the claim could be disposed of or encumbered and
placed beyond the reach of the creditor. The creditor should be allowed
to protect his rights to reach property which could satisfy his claim
and prevent its erosion in value, disposal, or encumbrance.
house report no. 95-595
This section is new. It is designed to protect a debtor operating
under a chapter 13 individual repayment plan case by insulating him from
indirect pressures from his creditors exerted through friends or
relatives that may have cosigned an obligation of the debtor. The
protection is limited, however, to ensure that the creditor involved
does not lose the benefit of the bargain he made for a cosigner. He is
entitled to full compensation, including any interest, fees, and costs
provided for by the agreement under which the debtor obtained his loan.
The creditor is simply required to share with other creditors to the
extent that the debtor will repay him under the chapter 13 plan. The
creditor is delayed, but his substantive rights are not affected.
Subsection (a) is the operative subsection. It stays action by a
creditor after an order for relief under chapter 13. The creditor may
not act, or commence or continue any civil action, to collect all or any
part of a consumer debt of the debtor from any individual that is liable
on such debt with the debtor, or that has secured the debt, unless the
individual became liable or secured the debt in the ordinary course of
his business, or the case is closed, dismissed, or converted to chapter
7 or 11.
Subsection (b) permits the creditor, notwithstanding the stay, to
present a negotiable instrument and to give notice of dishonor of the
instrument, in order to preserve his substantive rights against the
codebtor as required by applicable nonbankruptcy law.
Subsection (c) requires the court to grant relief from the stay in
certain circumstances. The court must grant relief to the extent that
the debtor does not propose to pay, under the plan, the amount owed to
the creditor. The court must also grant relief to the extent that the
debtor was really the codebtor in the transaction, that is, to the
extent that the nondebtor party actually received the consideration for
the claim held by the creditor. Finally, the court must grant relief to
the extent that the creditor's interest would be irreparably harmed by
the stay, for example, where the codebtor filed bankruptcy himself, or
threatened to leave the locale, or lost his job.
1984--Subsec. (c)(3). Pub. L. 98-353, Sec. 524, inserted
``continuation of'' after ``by''.
Subsec. (d). Pub. L. 98-353, Sec. 313, added subsec. (d).
Effective Date of 1984 Amendment
Amendment by Pub. L. 98-353 effective with respect to cases filed 90
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out
as a note under section 101 of this title.
Section Referred to in Other Sections
This section is referred to in sections 106, 108, 348 of this title.