When you file Chapter 13, section 1301 stops creditors from collecting consumer debts from anyone who co-signed with you, for as long as the case is open. Your mother who co-signed the car, the friend on the personal loan, the ex-spouse still on the credit card. Chapter 7 offers them nothing. The protection has limits, and the creditor can ask the court to lift it if the plan doesn't pay the debt in full.
Who the co-debtor stay protects
A co-debtor is any individual who is liable with you on a consumer debt but hasn't filed bankruptcy. A co-signer, a guarantor, a joint borrower, or a spouse who's on the account but isn't filing. It has to be a person, not a business, and it has to be a consumer debt: a car loan, a personal loan, a credit card, a furniture account. A business loan your brother signed for doesn't qualify, and neither does a debt where the co-signer got the money or the goods and you were the one doing the favor.
The stay starts the moment your case is filed, without a motion, and it covers collection of every kind: calls, lawsuits, garnishment, and repossession from the co-debtor. Creditors sometimes ignore it because the co-debtor didn't file. That's a violation, and the court takes it seriously.
The situation that brings people here
Your father co-signed the Camry when your credit wasn't good enough. Three years later you're behind on everything, and the one thing you can't stomach is the finance company calling him in Glendale about a car he's never driven. A Chapter 7 discharges your liability and leaves his intact. The day after your discharge, the lender turns to him for the whole balance.
Chapter 13 handles it differently. Your plan pays the car loan, either in full at the contract terms or crammed down if the 910 days have passed, and while the plan is running the lender can't touch your father. If the plan pays the loan in full, he's never called. That's the reason a surprising number of people choose the five-year case over the four-month one, and it's a good reason.
Where the protection stops
The stay is only as strong as the plan's treatment of the debt. A creditor can move to lift the co-debtor stay on three grounds: the co-debtor actually received the benefit of the loan, the plan doesn't propose to pay the claim in full, or the creditor would be irreparably harmed by waiting. The second is the one that matters. If your plan pays unsecured creditors 20%, the co-signed personal loan is in that class, and the lender can get the stay lifted as to the other 80% and pursue your co-signer for it.
Two more limits. The stay ends when the case ends, by discharge, dismissal or conversion. And it doesn't discharge the co-debtor's liability, ever. Only payment does. A co-signer on a debt the plan pays in full walks away clean. A co-signer on a debt the plan pays in part still owes the balance after your discharge.
Paying a co-signed debt in full, on purpose
Plans can separately classify a co-signed consumer debt and pay it 100% while other unsecured creditors get less. The Code allows it precisely to protect co-debtors. Trustees in the Central District accept it routinely as long as the difference isn't extreme; paying a $6,000 co-signed loan in full while other unsecured creditors get 10% is ordinary. Paying a $60,000 co-signed loan in full while others get nothing draws an objection on fairness grounds.
The cost is the extra plan payment. A $6,000 loan paid in full over 60 months is $100 a month before the trustee's percentage. Most clients who filed to protect a parent consider that a bargain. The three tests on the main Chapter 13 page still set the floor; the co-signed debt is added to it.
What the co-signer should and shouldn't do
Don't pay. That's the counterintuitive advice, and it's usually right. If your co-signer keeps making the payment on a debt the plan is already paying, the creditor gets paid twice and the plan doesn't get any credit for it. Have your co-signer send the collection letters to us and stop.
The exception is a debt the plan isn't paying in full. There, the co-signer may want to keep the account current on the uncovered portion, or negotiate a settlement directly, because the stay will lift on that portion eventually. We'll walk through it with the co-signer on the phone, with your permission, so everyone knows what to expect.
Chapter 7 with a co-signer
If Chapter 7 is otherwise the right chapter and there's a co-signer, we don't pretend the co-debtor stay exists. Your discharge protects you. The co-signer is exposed to the full balance. Sometimes the answer is that you keep paying the co-signed debt voluntarily after discharge, which is allowed. Or the co-signer refinances it alone. Now and then the debt is small enough that it doesn't change the chapter choice. The chapter comparison weighs this alongside the other factors, and a free consultation with your co-signer on the call is often the fastest way to settle it.
the person who co-signed is often the reason the client waited two years too long to call. They'd rather drown than let a parent get a collection letter. I get it. What I tell them is that Chapter 13 was written with that exact loyalty in mind, and that a plan paying the co-signed loan in full keeps the parent completely out of it. I've had clients bring the co-signer onto the Zoom for the consultation. It's a good idea. The co-signer usually leaves relieved, and the client files a case they should have filed a year earlier.
Questions people ask about this
Does the co-debtor stay protect my spouse if I file alone?
Yes, for consumer debts you're both on, as long as your spouse hasn't filed. Community property rules in California add a separate layer of protection for a non-filing spouse, but the co-debtor stay is what stops the direct collection calls and lawsuits.
Can the creditor still sue my co-signer during my Chapter 13?
Not without first getting the co-debtor stay lifted by the bankruptcy court. A lawsuit filed against your co-signer without that order violates the stay and can be voided. Send us the papers if it happens.
Does the co-debtor stay cover a business loan I signed for with a partner?
No. The stay applies only to consumer debts, meaning debts incurred for personal, family or household purposes. A business loan is outside it, even if a person co-signed.
What happens to my co-signer when my plan is finished?
If the plan paid the debt in full, nothing; the debt is gone for both of you. If it paid only a portion, the creditor can pursue your co-signer for the remainder once the case closes, because your discharge doesn't extend to them.
My co-signer is being harassed right now. How fast can this start?
The co-debtor stay is effective the moment the petition is filed. In an emergency we can file a skeleton petition within a day or two of the consultation, and the calls to your co-signer must stop on filing.
Talk it through with the attorney
If someone co-signed for you and you're trying to keep them out of this, book a free video consultation and bring them onto the call if you like. Naomi will show you what a plan that pays the co-signed debt in full would cost each month.