Bankruptcy: Simkovic Fall 2012
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ADVISORY TO CRs PLANNING TO EXTEND CREDIT/FUTURE ACTIONS
1. STEP 1: Plan Ahead/Negotiate
a. Before becoming a creditor/accepting a debtor’s plan, get a security interest in some collateral.
i. Ex. Mortgage, UCC, PMSI
2. STEP 2: Make sure the security interest is in writing:
a. Most consensual liens require a writing in which the debtor grants the lien and describes the property covered, even if it is property or inventory to be acquired in the future.
3. STEP 3: Perfect w/ UCC1 form
a. The liens are given legal effect against third parties only if the secured party gives public notice of its interest. When a creditor has made such a filing its lien is perfected.
4. STEP 4: If the debt isn’t paid, the lienholder may force the sale of the collateral and use the proceeds to pay the outstanding loan.
a. A consensual lien usually restricts the debtor’s disposition of the collateral so that it is available at the time of default.
b. Alternative to Sale: PERSONAL PROPERTY
i. UCC Article 9 allows PP to satisfy outstanding debt in 2 ways:
1. Self Help reposition
a. So long as it doesn’t breach the peace
2. Offer to keep the property in satisfaction w/o any sale.
5. STEP 5: Deficiency Judgment
a. In addition the secured creditor has all the remedies of unsecured creditors (can sue on the debt, obtain a judgment, and ask the sheriff to seize and sell the collateral except they know that their priority in the security has been guaranteed.)
i. DEBTOR DEFENSE: When this happens debtors will likely argue that the sale of the collateral violated the complex rules governing such sales and therefore the debtor shouldn’t be responsible for the deficiency.
i. Ex. There was no notice of sale as required by UCC § 9-611
1. If Consumer + no notice à the creditor eats the deficiency
2. If non-consumer + no notice à the creditor eats the deficiency unless he can show the deficiency would have been just has great had notice been given. UCC §9-626
6. PRO:
a. Consensual liens allow the collateral to be seized more quickly and cheaply than a judgment creditor who have to sue and get execution before the sheriff sells the property.
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STEP 1: IDENTIFY THE PARTIES “who is your client, what does he want?”
1. Judgment Creditor
2. Creditor
3. Debtor
4. Garnishee
5. Garnishor
STEP 2: PREDICT DEBTOR ACTIONS.
6. STEP 1: Sum together the Debtor’s income
7. STEP 2: Given the debtor’s income and total expenses, debtor will only be able to pay certain bills. Predict which bills debtor will pay based on
a. rank of necessity and social needs.
b. The debtor will pay some debts bc of personal relationships/limited alternatives aka the only dentist in town.
c. Debtor will pay for luxuries to maintain friendships.
STEP 3: Non-Judicial Collection Restrictions
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CREDITOR TOOLS (NON JUDICIAL)
1. Why Non-Judicial
a. Pro: Avoid litigation costs, if the debtor needs our services, default isn’t as likely.
2. Methods of collection out of court: GAIN LEVERAGE
a. Use formal legal remedies as leverage in negotiation OR
b. publicize debt OR
c. renegotiate for a security interest in exchange for an extension OR
d. threaten to withhold future business if the debtor needs you OR
e. file a law suit OR
f. Report the debtor to a credit reporting agency.
i. This negatively affects Debtor’s ability to get credit, get a job, rent an apartment, etc.
g. Attempt to Collect outside of the court system.
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DEBTOR TOOLS AGAINST ALL (NON JUDICIAL)
3. Restriction on Non-Judicial collection under the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
a. Even if Creditor reports the Debtor to Credit Reporting agencies[JP1] the Debtor may:
i. TOOL 1: Access their credit report FCRA § 612(a)(3)(A)
ii. TOOL 2: Dispute to remove any inaccuracies w/ CR agency: which will force the CR agency to: FCRA § 611(a)(1)(A)
1. Free of charge:
a. Conduct a reasonable investigation to determine the truth AND
i. CR AGENCY DUTIES[JP2] after reasonable investigation FCRA §611(a)(5)(A)
ii. CR AGENCY must delete information that is unverified/incorrect from the Debtor’s report and notify the creditor of the change: FCRA §611(a)(5)(B)
1. the information may NOT be reinserted unless the furnisher of the information certifies the information is complete and accurate AND if it IS reinserted à CR agency must give notice to the consumer of reinsertion w/in 5 days.
iii. If the dispute is STILL not resolved, the consumer may file a brief statement explaining the dispute. FCRA § 611(b)
b. Record the status of the disputed information.
2. OR
a. Delete the disputed item within 30 days of the notice of dispute.
iii. TOOL 3: Notice Requirements for Adverse Action based on Credit Reports
1. Any person who takes adverse action wrt a consumer based on a credit report MUST provide: FCRA §615(a) TRIGGER: A CR denies a DR’s loan application.
a. Oral/written notice of the adverse action
b. The Name, Address, Phone of the CR Agency
c. A statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken
d. Oral/written notice of the right to: § 615(a)(3)
i. obtain a free credit report
ii. dispute the accuracy of the report with the CR Agency
iv. TOOL 4: Threaten Damages for violation of the FCRA § 616
1. Damages to the Consumer (Willful noncompliance) FCRA § 616(a)
a. Willful violation of any requirement of the FCRA will result in damages to the consumer measure by:
i. Actual damages to the consumer limited to $100Ex[JP3] .
ii. ADVISORY: Recovery is limited, may not be worth it to sue because legal fees will eat up any recovery. However, there MAY be punitive damages. It may just be better to dispute the file and have it removed rather than pursue legal action.
2. Damages to the CR Agency (Knowing) FCRA § 616(b)
a. Obtaining a report under false pretenses or knowingly w/o a permissible purpose will result in the greater of:
i. actual damages sustained by the CR Agency, or;
ii. $1,000.
3. Damages for Bad Faith (Attorney’s fees) FCRA § 616(c)
a. If any unsuccessful motion/pleading is filed in bad faith or to harass, the prevailing party will be awarded reasonable attorney fees in responding to such motion/pleading.
b. HIDDEN ISSUE: If one side’s claim is weak, the court may find bad faith and award atty fees.
4. Damages to the Consumer (Negligent Non-Compliance) FCRA § 617(a)
a. Negligent violation of any requirement of the FRCA will result in damages to the consumer measured by:
i. Actual damages to the consumer AND
ii. If the consumer wins, the consumer gets the costs of bringing the action AND reasonable attorney fees determined by the ct.
b. Damages for Bad Faith (Attorney’s fees) FCRA § 617(b)
i. If any unsuccessful motion/pleading is filed in bad faith or to harass, the prevailing party will be awarded reasonable attorney fees in responding to such motion/pleading.
ii. HIDDEN ISSUE: If one side’s claim is weak, the court may find bad faith and award atty fees.
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DEBTOR TOOLS AGAINST 3rd PARTY “DEBT COLLECTORS” AND CREDITORS (NON JUDICIAL)
1. ARGUE: Debate whether the party using unsavory collection falls w/in the definition of Debt Collector.
2. Does debtor want to take action against a “Debt collector” as defined by FDCP § 803?
a. WHO: A “Debt Collector” is someone who: FDCP § 803(6)
i. Collects debts for a 3rd party AND
ii. Using an instrumentality of interstate commerce
iii. AND is one of the following:
1. Is affiliated with a debt collection business OR
2. Regularly attempts to collect debt of others including attorneys (p.20 CASE: Heintz v. Jenkins)
b. OR
i. Creditors who: (HIDDEN ISSUE! If so, FDCP applies to the creditor)
1. Uses another name that would indicate a 3rd Party is collecting the debt.
2. Def- CR[JP4]
c. OR
i. Persons who primarily engage in the enforcement of security interests.
d. Exception: Parties who are NOT s.t. FDCP. FDCP § 803(6)
i. Officers/employees of a creditor while collecting debts in the name of the creditor
ii. Persons ac
ement creating the debt.
2. 2) Debt collector acceptance of any check post-dated by >5 days (unless such person is notified in writing that debt collector will deposit such check 3 the check.
3. 3) Debt collector asking for post dated checks in order to be able to threaten criminal prosecution
a. POLICY: if you cash the check and it bounces, it makes the debtor a criminal in some states where it is illegal to write bad checks. We do NOT want to have the criminal system mixed with the creditor-debtor relationships.
4. 4) Threatening to deposit
5. 5) Causing charges to be assessed against ANY person for communication by concealing the true purpose of the communication, ex. Collect phone calls and telegrams.
6. 6) threatening to take/taking nonjudicial action to take away or disable property if there is
a. No enforceable security interest
b. No present intention to take possession OR
c. The property is exempt
i. HIDDEN issue, threatening collection on exempt property triggers liability under FDCP for debt collectors.
7. 7) Communicating w/ a debtor about a debt by post card.
8. 8) Putting anything on an envelope other than debt collector’s address when communicating w/ debtor by mail/telegram.
a. Exception: debt collector MAY use his business name if it doesn’t indicate he is in the business of debt collection.
6. TOOL 3: Debtor can make void a deficiency judgment.
ii. DEBTOR DEFENSE: When there is a deficiency judgment debtors will likely argue that the sale of the collateral violated the complex rules governing such sales and therefore the debtor shouldn’t be responsible for the deficiency.
i. Ex. There was no notice of sale as required by UCC § 9-611
1. If Consumer + no notice à the creditor eats the deficiency
2. If non-consumer + no notice à the creditor eats the deficiency unless he can show the deficiency would have been just has great had notice been given. UCC §9-626
7. Usury Laws- if a creditor charged more than a predetermined rate, the loan would be deemed usurious and the interest and under some statutes, the principal itself would be uncollectible.
a. However these laws eventually proved useless when the SC determined that a federally chartered bank could charge whatever interest rate was legal in the bank’s home state. Many states quickly weakened their usury laws to attract banks.
i. RESULT: Banks could export their interest rates out of S. Dakota and Delaware which are unregulated
b. Today interest rates are effectively “deregulated”
[JP1]Employers cannot discriminate against employees for going through CH11.
[JP2](A) If an item of the information is found to be inaccurate or incomplete or cannot be verified, the consumer reporting agency shall:
(i) promptly delete that item of information from the file of the consumer, or modify that item of information, as appropriate, based on the results of the reinvestigation; and
(ii) promptly notify the furnisher of that information that the information has been modified or deleted from the file of the consumer.
[JP3]Filing fees, lawyers fee,s all costs incurred in challenging the CR Agency’s WILLFUL violation
[JP4]FDCPA § 803(4): “The term “creditor” means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.
