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» VISIT US ONLINE @ DSNEWS.COM 25 THE CO-DEBTOR STAY AND SERIAL FILINGS Serial bankruptcy filers are commonplace during a foreclosure proceeding, especially as a foreclosure sale date nears. e addition of Bankruptcy Code §362(d)(4)(i) offers some protection against serial filers as it provides that the automatic stay imposed by §362(a), does not take effect if the debtor has had two or more bankruptcy cases dismissed in the preceding year. However, the seemingly beneficial result, afforded by this statute, does not account for the co-debtor stay imposed by 11 U.S.C §1301(c)(a). us, even if the automatic stay is deemed not to take effect pursuant to Bankruptcy Code §362(d)(4)(i), it does not necessarily mean that foreclosure can proceed. Servicers and counsel must be mindful that a co-debtor stay can exist, upon the filing of a chapter 13 petition, even when there is no applicable automatic stay that applies to the debtor. To determine if a co-debtor stay takes effect, counsel must review the loan documents and be sure that every element of 11 U.S.C. §1301( c)(a) has been met. It is not as straightforward as one might imagine. § 1301(c)(a) provides, in pertinent part, as follows: "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.". Accordingly, the analysis must begin with the following inquiries: » Is this a debt of the debtor? e debtor may not be an obligor on the note and/or have executed the mortgage. If the debtor did not sign the note and/or the mortgage, the co-debtor stay is inapplicable. » Is there a co-obligor on the note or a co- mortgagor on the mortgage instrument? If the answer is no, there is no co-debtor stay. » Is this consumer debt? Consumer debt is defined in the Bankruptcy Code as debt "incurred primarily for personal, family or household purpose," see 11 U.S.C.§ 101(8). Accordingly, it is the use of the debt which determines whether it is considered consumer debt. e majority of courts hold that a mortgage lien, secured by real property, is a consumer debt. See In Re: Lemma, 393 B.R. 299 (2008); In Re: Kelly, 841 F.2d 908, 913 (9th Cir 1988); In Re: Davis, 378 B.R. 539 546-47 (Banker. N.D. Ohio 2007), In Re: Hall 258 B.R. 45, 50 (Bankr. M.D. Fla 2001). Servicers and their counsel should be familiar with the court's interpretation of consumer debt in their respective jurisdictions. If the debt is not consumer debt, the co-debtor stay does not apply. » Is the co-obligor and/or co-mortgagor an individual? If the answer is no, there is no co-debtor stay. » Did the co-obligor and/or co-mortgagor become liable for the debt in the ordinary course of business? If the answer is no, there is no co-debtor stay. Failure to make the proper analysis, as to the applicability of a co-debtor stay, can result in severe consequences including the imposition of sanctions or the voiding of a foreclosure sale. See King v. Wells Fargo, (In Re: King, 362 B.R. 226). Servicers are encouraged to work closely with their counsel to make a proper determination before proceeding further with collection activities. Karen Sheehan is a partner in the bankruptcy department at Frenkel, Lambert, Weiss, Weisman & Gordon, LLP. She received a Bachelor of Arts Degree from Buffalo University in 1988. She earned her Juris Doctor from Indiana University in 1991 and was admitted to the New York State Bar in 1992. She is admitted to practice in the United States District Courts for the Eastern, Southern, Western, and Northern Districts and is a member of the Suffolk County Bar Association and the Hudson County Bankruptcy Bar Association. She is the Co-Chair of the Consumer Lawyers Advisory Committee in the Eastern District of New York since 2016. Sponsored Content

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