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26
Apr
2022

Co-Debtor’s Probate Estate Claim – Stay Lifted

Co-Signer’s Probate Estate Claim allowed even though primary Debtor agreed to repay loan 100% through Chapter 13 Bankruptcy Plan.

Here, Callaway Bank issued a loan to Ralph Case who later filed a Chapter 13 bankruptcy. The loan was cosigned by Ruth Trammell, who passed away prior to Case’s filing for bankruptcy.

The bank filed a motion with the bankruptcy court to lift the automatic stay and proceed against the deceased comaker’s estate. The deceased estate did have assets for distribution.

The Bankruptcy Code includes a Chapter 13 provision for a codebtor stay, which stays the efforts of a creditor to collect a debt from an individual who has cosigned or guaranteed debts for the debtor. The Code further provides that the stay may be lifted and the codebtor proceeded against to the extent that the Chapter 13 plan does not provide for complete payment to the creditor.

Here, the primary debtor’s Chapter 13 repayment plan initially proposed repayment to the bank on its unsecured loan of 5%. The plan was later amended to provide for 26.5% to the bank.

When the bank filed its motion to lift the stay and proceed against the probate estate, the primary debtor filed a motion in bankruptcy court to allow for 100% repayment to the bank on the cosigned loan.

Even though the debtor was now providing for 100% repayment through the plan, the court noted that if for some reason the plan was not completed, or was later converted to a Chapter 7 case, the bank could lose its entire claim once the codebtor’s probate estate was closed. This court noted that once the probate estate closes and the estate funds are disbursed, the bank could conceivably be confronted with the problem of proceeding against all the heirs; the probate estate had twelve heirs.

The court found that unless the bank was permitted at this time to proceed against the codebtor’s deceased estate, the bank could be irreparably harmed.

Hence, the court lifted the stay to permit the bank to collect from the co-debtor’s deceased estate. In re William Case, 148 B.R. 901.

Author:  Charles R. Harroun, Attorney at Law



This entry was posted on Tuesday, April 26th, 2022 at 7:51 am and is filed under Bankruptcy, National. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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