Chapter 13 Credit Issues

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Chapter 13 Credit Issues

I filed Ch. 13 alone; my husband is a co-debtor on a car loan that is part of the bankruptcy. The creditor has been reporting late on my husband’s credit since the bankruptcy, almost a year now. We have researched co-debtor stay, which states that in chapter 13, a consumer debt should not be collected on nor should it adversely affect co-debtor’s credit. We are trying to dispute through credit bureaus, but the creditor is insisiting they are correct and plan to continue reporting late on my husband’s credit for next 4 years. Should we file Ch. 7, or is there anything else we can do?

Asked on May 12, 2009 under Bankruptcy Law, Tennessee

Answers:

N. K., Member, Iowa and Illinois Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Indeed you did some research on the issue.  And accordingly, the co-debtor protection does not apply in a Chapter 7 liquidation bankruptcy but only in a Chapter 13 - that generally prevents creditors from pursuing rights against co-debtors until the case is closed or converted into Chapter 7 or Chapter 11. 

Co-debtor stay is subject to some limitations.  A creditor can seek relief from the court to nullify the stay if: (1) continuation of the co-debtor stay would cause irreparable harm to the creditor, (2) the co-debtor was actually benefitted from the debt and, (3) if Chapter 13 plan does not propose 100% payment of the co-signed debt which could include accrued interests and other costs.  Thus, this may allow the creditor to pursue collection for those aforesaid expenses. Therefore, and by under any of these, kindly verify whether a Motion for Relief from Co-debtor Stay was filed, as this may greatly help.   

Regarding the main issue of adversely affecting co-debtor’s credit; an outright interpretation of this act could be as: having the intent to deliver pressure against the co-debtor and indirectly against the filing debtor (In re Sommersdorf, 139 B.R. 700, Ohio 1991).  Whether the furnishing of credit information to credit bureaus constitutes an attempt to collect a debt or not, the creditor’s cause of action is fundamental in determining if there is a violation of automatic stay provisions. Oftentimes, this is difficult to establish.  The Bankruptcy Code does not cover any provisions of remedy regarding the act of furnishing credit information by a creditor about a debtor’s debt.   

In the meantime, I advise you to obtain copies of credit reports (past and present) on both you and your husband. This will allow you to review the report/s and discern any inconsistency or inaccuracy in the report.  It will help you in discussing possible remedial action with your bankruptcy attorney.


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