Bankruptcy Forms: Filing Bankruptcy Chapter 7 Bankruptcy Software Chapter 13

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TITLE 11–BANKRUPTCY

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 
that--
        (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; 
    or
        (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 
action.

(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

                         legislative statements

    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 
another chapter.
    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 
13 relief.
    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.


                               Amendments

    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.



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