Chapter 1: Creditors’ Remedies under State Law (3)
Assignment 1: Remedies of Unsecured Creditors Under State Law (3)
A. Who is an Unsecured Creditor (3)
i. Creditor anyone who is owed a legal obligation that can be reduced to a money judgment
ii. Unsecured Creditor is a creditor who does contract for secured status or is not granted it by statute
iii. Unsecured creditors are the general creditors or ordinary creditors that populate state collection proceedings.
iv. Judgment Creditor is an unsecured creditor that has obtained a court judgment.
v. Most unsecured creditors get paid, but the unsecured creditors who do not are the ones to bring the lawyers into it the case.
B. How do Unsecured Creditors Compel Payment? (4)
i. Path to payment is narrow. Law provides procedures, and often bars certain procedures.
a. Barred, is self-help seizure of the debtor’s property, unreasonable means (may bring wrongful collection liability),
ii. Debt Collection Process
a. File a complaint in appropriate court, and serve process on the debtor-defendant
1. If it’s a small claims court case, the next step may be the court deciding the entire case in a hearing.
b. Debtor may file motions in response, and answers will be filed.
c. Trial set for court date.
VITALE v. HOTEL CALIFORNIA, INC. (6)
FACTS: Man demands the sheriff continually serve a writ of execution for the seizure of money at a bar until debt is fulfilled. Sheriff finds this unreasonably excessive.
ISSUES: (1) Whether successive levies can be made under one writ? Yes, Successive levies can be made under the same writ if the initial levy does not satisfy the judgment. Had the plaintiff received the original writ, he would have had to have had an alias writ issued, but the writ was never given to him (2) Whether the sheriff rightly refused to honor an unreasonable levy request? No, The request was not unreasonable given the circumstances and the Sheriff wrongly refused to honor it. (3) Does the conduct of the sheriff subject him to amercement? Yes, The demand by Plaintiff was reasonable and the Sheriff’s neglect to levy subjects him to amercement. (4) Whether Plaintiff demonstrated a loss? Yes, Given that only one levy was made even though the bar was open most of the summer and is now closed for the winter, Plaintiff has demonstrated a loss.
C. Limitations on Compelling Payment (13)
i. Judgment creditor has obligation to use discovery to locate assets. Meaning creditor can demand information, and sheriff needs clear directions on what to get and where.
ii. Debtors who refuse to answer questions during discovery can be subject to contempt sanctions.
iii. Money judgments are only valid state by state.
D. Fraudulent Transfers (16)
i. All states have laws that permit creditors to set aside their debtor’s fraudulent transfers and recover the property transferred.
a. Difficulty is proving the debtor’s bad intent in the transfer.
ii. Any transfer made without receiving a reasonably equivalent value in exchange is fraudulent if the debtor was insolvent at the time of transfer. So, the debtor can not just give away money to anyone.
iii. However, transfers are easy to make and hard to discover.
E. Is the Law Serious About Collecting Unsecured Debts? (17)
i. Some debts are enforced more serious than others, like child support.
Problem Set 1 (18)
1.1. No, you can not. You need to file a claim, serve Lisa. Then a trial needs to occur. If you get a judgment, you can have a sheriff perform the writ.
1.2. Their approach to obtaining the lobsters was fraudulent. Therefore the lobsterman has a potential claim against them for the lobster acquisition. Further, criminal charges could be filed against them for conversion. Therefore, they are still owed the entire 30,000 and need to go through the above process to get it.
1.3. She has no rights, because they have not missed any payments. Big message here is that you have the most rights 2 minutes before you agree to lend the money. She should have built in some protections.
1.4. It could be awhile before she is paid if ever. The idea for seizing the assets may be the best means of being paid. Does Ted own the building? If so it will be a lot easier, sell the property on the courthouse steps. Just need a writ from the court and a sheriff to fulfill it.
Class Answer: Find out what assets he has. We need to know what the entity is. Is it a sole proprietorship? etc. Seems that Benning made a loan to Knopf individually. We can find out some of his ownership status by looking as the secretary of state’s website. Garnishment is getting assets out of a checking account. Get an order from the court to the bank to pay the money in the account to a person. Garnishment is nice because you get the amount dollar for dollar. IN Kentucky you have to have writ of execution and it comes back unsatisfied . Then you can take a deposition. It is a lot to do. So practically speaking, see if he has any real estates in records. Basically do private investigator work. Understand that you are an unsecured creditor, meaning secured creditors will get the priority
1.5. Since money judgments are only valid state by state, Karen will need to get a judgment in Wisconsin. If the judgment was issued in Wisconsin, no new writ is necessary. Assuming, that none of the items are barred by statute, she would probably just get the smallest things that add up to $12,000.
Class Answer: What can the sheriff take away? Every state has a set of exemptions.
a. Wisconsin has a $1,200 vehicle exemption
b.
c. $7,500 exemption
d. $1,000 exemption
Just know that there are lots of places where people can put money. Like gift certificates, paypal, etc.
1.6. If Knopf lies about it he can be held in contempt of court.
Assignment 2: Security and Foreclosure (21)
s judicial if it is accomplished by entry of a court order.
ii. Once the final judgment for foreclosure is issued the debtor must leave property if he does not a writ will be issued requiring him to do so.
iii. With cooperation a debtor can transfer property to the creditor with a deed in lieu of foreclosure
2. Real Property Power of Sale Foreclosure (34)
i. About 25 states allow mortgage and lender to opt for a simpler method of foreclosure against real property. They do this by including the power of sale in the security agreement.
a. Foreclosure is still necessary, but does not require filing a lawsuit.
3. U.C.C. Foreclosure by Sale (35)
i. The process by which a secured creditor forecloses a security interest in personal property is much simpler than the process for real property.
ii. Article 9 of the Uniform Commercial Code governs the foreclosure of security interests in personal property.
a. It says that after default the security party may sell, lease, license, or otherwise dispose of any or all of the collateral, which forecloses debtor’s rights to property and extinguishes the creditor’s security.
Problem Set 2 (35)
2.1(a)
2.1(b)
2.2 In UCC Article 9 if
2.3(a) Deed in lieu of foreclosure may be the best option. Remember not always a good idea to push every deal to the max. Person could think that they were ripped off and come back and sue. Could be a bigger mess than it was worth.
2.3(b) Probably won’t work because this is a security interest. You can not tip toe around a foreclosure. As presented by Basile.
2.7 Does UCC apply? Yes. Intended to create security interest? Yes. In real property? No
Assignment 3: Repossession of Collateral (38)
A. The Importance of Possession Pending Foreclosure (38)
i. Who has possession of the items between the debtor’s default and the debtor’s equity redemption?
ii. Secured creditor wants possession pending foreclosure.
a. Debtor has little reason to preserve the property
b. The use of the collateral between the two times may have substantial economic value.
c. If debtor is in possession it may be difficult for prospective purchasers to evaluate the property.
iii. Whether courts will enforce provisions that allow creditor to have possessions of the property on default depends on the circumstances.
