Outlines for Bankruptcy
Professor Pottow
Chapter 1 Collection without Courts
1. Fair Debt Collection Practice Act, p.15-20
o Why do we care about the debt collection method?
Ø Efficient?
Ø If consumers aren’t protected, they may be scared away from borrowing. But if more debts are collected by extreme practices, the savings will be passed on to the borrower, encouraging him to borrow.
Ø …
o Heintz v. Jenkins, 1995, p.20
Ø Debt collector: definition: The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
Ø Is a lawyer a debt collector? Holding: the FDCPA applies to attorneys who “regularly” engage in consumer-debt-collection activity, even when that activity consists of litigation.
2. Leverage and credit info
o Leverage between the debtor and creditor: whether the creditor can pose creditable threat
o Legal system can give some weight on the leverage of creditor
o Creditor reporting: creditor who can make credible threat to deny access to future credit may increase their collection leverage.
Ø FICO score: the rating score (Fair Isaac Company)
Ø Protection of personal credit info: giving the debtor access to the credit report info and prescribing procedures to assure the accuracy of the info in the file.
o Fair Credit Reporting Act, p.9-11
3. Bankruptcy laws
o The contents
Ø Chapters 3, 5. General Rules of Bankruptcy
Ø Chapter 7. liquidations
Ø Chapter 13. Personal reorganization
Ø Chapter 11. Reorganization
Ø Chapter 15, cross-border bankruptcy
o Why to have bankruptcy law?
Ø Balance the interests of debtors and creditors
v so debtors borrow without fear of social expulsion and creditors and
v lenders still lend with the reliance that they will get something back
Ø Discharge can encourage the entrepreneurs to invest risky projects?
Ø Efficient?
Ø Fairness to distribute the assets pro rata?
o Why is it a federal law, not a state law?
o Are the federal bankruptcy law and state collection laws the same things?
o Relationship with secured transaction
Ø Secured transaction: specific obligation default
Ø Bankruptcy: general obligation default
4. Usury law
Ø Basically state law
Ø Dead; Banks only have to meet the state laws where they are in and can solicit business everywhere.
Ø Delaware and South Dakota have no usury laws.
Ø Marquette, p.14
v The Supreme Court changed the interpretation of usury law. The bank can charge any interest rate that is allowable in its state but may exceed the cap of the customer’s state.
Chapter 2 State Law Debt Collection
A Collection Remedies
1. Introduction to Judgment Collection
o Execution
Ø After the judgment, the debt is no different from other unsecured debtor; the only difference is that the judgment debt is indisputable and liquidated.
Ø Start from a writ, called an execution writ or a writ of attachment
Ø The writ orders the sheriff or marshal to look for non-exempt property of the judgment debtor, to seize it, and to pay the proceeds to the judgment creditor, until the judgment is fully paid.
Ø Usually the sheriff takes physical possession of any property found, but he may tag it with a notice of seizure if the property cannot be physically taken.
Ø The entire process of seizure is called a “levy” and what the sheriff does is “to levy upon” the property.
Ø The whole process, from writ issuance to seizure, is often called an “execution”. Once the sheriff has seized the property, actually or constructively, it is said to be in the custody of the court.
Ø After levy, the sheriff reports to the court with a document called a “return”; if he does not find the property, the return may state “nulla bona”.
o Turnover orders
Ø The debtor has to turnover the property under oath otherwise under contempt and jail.
o Other writs
Ø Each state has some different writs, like sequestration
o Judgment liens by recordation
Ø Only judgment cannot give a debt any special right or priority. By recording it in the proper public record, it creates a judgment lien on the property. The process is often called “abstracting the judgment”.
Ø Usually recordation only applies to the real estate, but in many states it can also be applied to personal property.
Ø CA and Florida permit a single filing to put a legally effective lien on all the debtor’s personal property available for collection anywhere in the state.
o Debt collection by the federal gov
Ø Federal Debt Collection Procedures Act
Ø The procedures are similar to those in this chapter; the real point is uniformity.
Ø The act does not apply to enforcement of all judgments in federal courts, only to judgments in favor of the federal government.
o Family debts
Ø Alimony and child support are among the most difficult debts to collect
Ø Some special rules for this: retaining the imprisonment; exception to the exemption of garnishment of wages
Ø Child Support Act of 1992
o Voluntary liens
Ø A consensual lien must follow a fairly detailed statutory scheme of agreement and recordation.
Ø The law of security interests are covered in Article 9 of UCC
Ø Consensual lien may be “Purchase Money liens”. Those liens are used to furnish the credit necessary for the purchase of the collateral. (PMSI = purchase money security interest)
Ø Under Article 9, a debtor may offer a security interest in “all my equipment, current and after acquired”.
Ø A consensual lien often can seize the collateral more quickly and cheaply than a judgment lien.
Ø The seizure for sale – called a “foreclosure” in the case of real estate and “repossession” in the case of personalty – is heavily governed by a myriad of state rules that differ in detail but usually cover similar issues.
Ø The Article 9 creditor can seize the property without any help from the sheriff (self-help repossession) or can offer to keep the property in satisfaction of the debt without any sale (retain in satisfaction). Both options have some restrictions, including a requirement that self-help repossession not involve a breach of the peace.
Ø Deficiency judgment
o Statutory liens and trust funds
Ø Statutory liens, like the landlord’s lien, artisan’s lien, and construction lien. Usually those are created by state laws.
ghts
The property in bankruptcy includes the valuable contractual rights
Some contractual rights can be garnished; some not.
Ø Network solutions v. UMBRO International, 2000, p.69
Holding: a contractual right to use the internet domain name is not garnishable because of the privity of the contract. A K for services is not a liability and hence is not subject to a garnishment.
Problem Set 3, p.77
3.1 A:
Ø ASB can offset the $10 firstly.
Ø The first writ was issued on Feb.1, the second on Feb.7, and the sheriff served both on Feb. 9
Ø There is a temporal net of 14 days for the garnishment. Is the net for the benefit of the garnishee to get their stuff together? Or maybe for the benefit of the JC to get as much money out of the account as possible. Pottow: the later. 14 day net starts on service. Can take all the money that comes into the account during those 14 days.
Ø Can bank allow money to be withdrawn from the account? Is it on notice and has to freeze the account.
Ø Can JD get notice of the garnishment?
Ø Which one has priority? JC 1 or JC 2? It depends on the state laws. The date of levy is not always the controlling date for determining priority. In many states, JC1 still wins because its perfection is backdated to the date the sheriff got the writ. Some states use different rules, like the date of judgment or date of the sheriff’s levy.
3.1 B:
Ø The bank is responsible for the $500 check paid to the telephone company on Feb.9, though another $500 (200+300) comes back to the account. Because the bank disobeyed the order of garnishment. From Webb v. Erickson, the garnishee may be responsible for the entire judgment, because he totally ignored the order, not just a mistake.
Ø $300 of wages is still available for the collection.
3.2:
Ø Fraudulent conveyance to avoid garnishing of assets. You can garnish the lease payments and get the assets when it is done even if you can’t get the actually property.
Ø If it is a fraudulent lease then the lessor is just the owner and can be garnished directly.
Ø What about the fraud? If it is a fraud, who will get the equipment?
3.3:
Ø Can’t fire for writ of garnishment, but can after the 2nd time!
Ø 15 U.S.C.A. § 1674 the Consumer Credit Protection Act
§ 1674. Restriction on discharge from employment by reason of garnishment
(a) Termination of employmentNo employer may discharge any employee by reason of the fact that his earnings have been subjected to garnishment for any indebtedness.(b) PenaltiesWhoever willfully violates subsection (a) of this section shall be fined not more than $1,000, or imprisoned not more than one year, or both.
5. Prejudgment remedies
