Chapter 1: Collection Without Courts pg 3 – 28
A) Nonjudicial Collection Methods
1) Leveraging
a) Leverage and control are key benefits in a security interest
2) Indirect Leverage in the Legal System
a) Creditors can sue but the legal process is expensive and there are lots of potential mistakes
b) There are several laws that indirectly reallocate the leverage between debtor and creditor
(i) Forgiveness of indebtedness income
(ii) California law requiring an employer to be shut down that twice fails to pay employees
(iii)Jail time for not paying child support
3) The Credit Information Process
a) Fair Credit Reporting Act pg 10
(i) Prof. idea is to have a central report to rate or warn of risky debts
(ii) Requires reinvestigation of any disputed item
(iii)Inaccurate info or info that cannot be verified must be deleted or modified as appropriate
(iv)If an adverse action is taken on the basis of a consumer report then
(1) The consumer must receive notification of the action
(2) The company that provided the report
(3) Notice the consumer can obtain a free copy of the report within 60 days
(4) Notice they can dispute the info with the reporting company
(v) Fines for obtaining a consumer report under false pretenses or willful failure to comply with act.
(1) Fine is actual damages of not less than $100 nor more than $1000
(2) Can get attorney’s fees
(3) Court can award punitive damages
(vi)Provides for remedy for negligent noncompliance
(vii) Provides for FTC enforcement
B) Restrictions on Nonjudicial Collection
1) Usury Laws
a) Marquette Nat. Bank of Minn. v. First Omaha Serv. Co., 439 U.S. 299 (1978)
(i) Ruled that under federal banking laws the bank could charge whatever rate was legal in its home state
b) Although Usury laws still exist interest rates are considered to be largely deregulated
2) Federal Statutory Controls on Nonjudicial Collection
a) Fair Debt Collection Practices Act pg 15 (15 USC 1692 et seq)
(i) Need to put in notes
(ii) Prof. you need to know it is out there.
b) Heintz v. Jenkins pg 20
(i) Issue: Whether a lawyer who regularly, through litigation, tries to collect consumer debts is a “debt collector” under the FDCPA
(ii) Yes. A lawyer who regularly attempts to collect debts fits in the definition even when the activity consists of litigation. Also, an earlier exemption for lawyers was repealed. This makes lawyers who regularly attempt to collect debts subject to the act.
Week 2
CHAPTER 2 State Law Debt Collection
A) COLLECTION REMEDIES
1) Introduction to Judgment Collection – introduction of most frequently used terms and to identify the issues that routinely arise
a) Execution
(i) Judgment gives the plaintiff not interest and no priority in any of the debtor’s property
(1) However, claim is indisputable by debtor
(2) Remains a general unsecured creditor until execution
(ii) Writ – a court order
(1) Execution writ – writ of attachment – orders the sheriff or marshal to look for non-exempt property of the debtor, seize it, sell it, and pay the proceeds to the judgment creditor, until judgment is fully paid
(a) This writ is issued routinely by the court clerk and delivered to sheriff for execution
i. If property is too big it is tagged with a notice of seizure
ii. Sheriff’s seizure of property is often called to “levy upon the property”
(iii)Once property has been levied upon the judgment creditor becomes a judicial lien creditor as to that property
(1) Sheriff then advertises the property for public sale to highest bidder
b) Turnover Orders
(i) An order for the judgment debtor to turn over property in his control, may be held in contempt if they fail to turn it over. Once property is traced to the debtor, the debtor bears the burden of establishing that certain property is no longer in his possession
(1) There is generally a turnover statute that allows for turnover orders
(ii) Advantageous to creditor because all he has to do is get necessary information of asset. Then debtor has to turn it over on pain of contempt
c) Other writs
(i) Writ of sequestration – used to seize and hold specific property, often property in which the creditor has a security interest
(ii) Each state varies
d) Judgment Liens by Recordation
(i) Obtained by recording a judgment lien in the county
their interest (stock certificates) in a Mexican corporation. Gerdes claimed he could not transfer because stock was not issued. Kennamer presented documents necessary to issue stock and transfer.
(2) Court holds in Kennamer’s favor and says that the turnover statute can require Gerdes to sign documents that will aid in the creditor reaching the debtor’s property.
2) The Struggle among Creditors: Priorities
a) Background:
(i) Creditor must make sure that proper procedures for judgment, execution, and sale are followed. Debtor hopes creditor will make a mistake preventing them from seizing the property.
(ii) Priority generally determined by “first in time is first in right”
(iii)Most common creditors seeking to levy against property: secured creditors, unsecured who have obtained judgment, and tax creditors
(iv)Perfection – when a creditor’s interest in the debtor’s property will prevail over subsequent interests
(1) Judgment creditors: perfection = execution
(2) Secured creditors: perfection = filing
(3) Statutory lien holders: whatever the statute says
b) Unsecured v. Unsecured
(i) Must get a levy to perfect on property. First to levy wins.
(1) Some states provide for an inchoate lien when the writ is delivered to the sheriff. This allows the levy on the property to relate back to this date.
c) Unsecured Judgment Creditor v. Secured Creditor
(i) Ordinarily the secured creditor is perfected when it files. If the judgment creditor is earlier it wins; if later it loses
(ii) Credit Bureau of Broken Bow v. Moninger (Neb. 1979) pg 47
Case dealt with a secured creditor who failed to perfect and a judgment lien creditor. Court held that judgment lien creditor was secured when sheriff levied on a truck
