Co-Debtor Stay When Only One Spouse Files Bankruptcy
Very often the impetus to commencing a New Jersey bankruptcy is to stop collection efforts by the IRS of the state taxing authority. Upon filing a petition for bankruptcy creditors are prohibited from levying the bank accounts or garnishing the wages of a debtor in bankruptcy. But what about a case in which only the husband or wife files for bankruptcy protection? Is the non-filing spouse protected by the automatic stay?
Under section 1301 of the Bankruptcy Code a creditor may not commence or continue any civil action to collect any part of a consumer debt from a joint debtor unless leave is granted by the bankruptcy court. This co-debtor stay prohibits collection for consumer debt incurred unless it was incurred in the ordinary course of business and until the case is closed or dismissed.
Joint Bankruptcy May Be the Better Option
Whether or not this provision will keep the taxing authorities from levying the non-filing spouse's bank account for joint tax debt may depend on the aggressiveness of the revenue agent. Normally the taxing authority will not try to collect on joint taxes if the taxes are being paid through a chapter 13 plan. But, I believe if the issue was brought before the court, it is unlikely that taxes would be considered a consumer debt; thus, not subject to the co-debtor stay. In my experience it is better to work out a consensual agreement with the revenue agent - or, of course, filing a joint bankruptcy petition.
If you need assistance on this matter or others, contact our New Jersey bankruptcy attorneys today.