Prof. Lissa Broome
I. Collecting Debt
a. Non-Judicial Methods
i. Ask (Dunning) (p. 5)
ii. Threaten to report to credit agency
iii. Threaten to revoke services
iv. Threaten to sue
v. Set off (p. 6)
1. Must be mature and mutual
b. Limits to Non-Judicial Methods
i. Not immune from criminal law
ii. Or tort liability
1. Defamation, abuse of process, right to privacy.
a. Ex. Store posting list of violators visible to customers
iii. Fair Debt Collections Reporting Act p. 7-8
1. Applies only to consumer debts
iv. Fair Credit Reporting Act
1. Evaluates credit risk for debt creation
2. Used in establishing relationship (landlord/tenant, jobs)
3. Helps in collecting debt
4. Governs only consumer credit reports
c. Judicial Methods
i. Obtaining an enforcing judgments
1. Default judgment- when deadbeat debtor doesn’t show up.
ii. Once judgment is entered, must execute to get judgment lien:
1. Record judgment to get lien on property in county of property
2. Writ of execution- directs sheriff to levy (seize) on debtor’s property then is sold in auction.
3. Writ of garnishment- when debtor is owed money from third party creditor goes directly to third party.
iii. Debtor’s right of redemption (p. 20)
iv. Fraudulent transfer can be voided if it was made with the intent to get around creditors (p. 21)
v. Prejudgment remedies- worried debtor will become judgment proof, can get an order for Sheriff to levy property and hold It for the eventual satisfaction of the debt.
1. Can also garnish wages or bank account pre-judgment
2. Heightened criteriaà must be exigent circumstances usually with notice and hearing.
1. States have exemptions that can’t be used to satisfy judgments.
2. 3 Policy Reasons
a. Debtors should be able to continue to be members of society (clothes, tools of trade)
i. Some states have a homestead exemption.
ii. 6 allow whole home exemption without regard to price. Some have price limits and 4 have no homestead exemption.
b. Items of nominal value
c. Items with low value but high sentimental value.
d. What happens if debtor does not pay back unsecured credit?
i. Start with non-judicial methods because they are cheaper.
ii. Then go to judicial options.
a. Individual debtor: property can still be exempt through bankruptcy process.
b. Debtor can stop collection by filling for bankruptcy
iii. Bankruptcy—last resort.
1. Can begin voluntarily by debtor by filling petition with the court.
2. Can also be initiated involuntarily by X% of debtors.
3. Automatic Stay: once bankruptcy starts, all attempts to collect debt stop!
4. Ch. 7 liquidation: assets said and divided among debtors any unpaid gets wiped and discharged.
II. Security Interest
a. Advantages of Secured Liens
i. Collections: security interest created by Chapter 9 can come through self-help and repossess property if they don’t reach the peace.
1. Writ of replevin
2. Not subject to state exemption statutes
ii. Priority over other creditors
iii. Enforcement in bankruptcy
1. Property in rem interest liability remains. Secured creditors will be paid at least value of collateral
2. Could also get relief from the automatic stay.
b. DEF SECURITY INTEREST: 1-201(35) Interest in personal property or fixtures that secures payment or performance of an obligation.
i. To become enforceable: ATTACHMENT + PERFECTION
1. Purpose of perfection: to get priority in line as a creditor. Provides public notice of a security interest in collateral so subsequent creditors won’t rely on this collateral.
c. REQUIREMENTS OF ATTACHMENT 9-203
i. For a SI to attach to collateral and become enforcement, it must:
1. Have VALUE given by the creditor (SP)
2. Debtor must have RIGHTS in the collateral AND
3. Debtor must have AUTHENTICATED A SECURITY AGREEMENT where collateral that attaches is described.
ii. Categories of Collateral
1. Collateral: 9-102(12) property subject to a SI
a. Description must be described in SA by debtor to attach.
i. Commercial tort claimà can’t list categories.
ii. Consumer transactionsà can’t use consumer goods, security entitlement, securities account, or commodity account. 9-108(d)
b. Sufficiency of description 9-108
i. Reasonably identifies what is described
ii. Description of collateral by type is sufficient under Art. 9
2. Goods (tangible collateral)- movable when SI attaches.
a. Consumer Goods 9-102(23) – goods used or bought for use primarily for personal, family, or household purposes.
b. Equipment 9-102(33) long term goods other than inventory, farm products, or consumer goods.
c. Farm Products 9-102(34)- (not timber) goods engaged in a farming operation by debtor.
d. Inventory 9-102 (48) goods leased, held for sale, furnished under service, raw materials, business materials (short term)
i. (incl. Timber)
e. Fixtures 9-102(41): goods that become so related to real property that an interest in them arises under real property law.
i. Consumer good or equipment.
f. Comment 4-
i. Goods are inventory if they are leased by a lessor or held by a person for sale or lease, includes goods leased by the debtor as well as goods held for lease.
ii. Machinery used in manufacturing is equip
i. Payment intangible: an IOU without a writing.
ii. Software: 9-102(16): does not include programs that come with a good. Program bought separately is intangible good.
iii. Commercial tort claim 9-102(13): claim arising in tort where claimant is an organization or an individual and the claim arose in the course of claimant’s business or profession.
iv. Letters of Credit: paper representing right to payment of money under certain circumstances.
d. Scope of Security Interest
i. After Acquired Collateral 9-204
1. Must indicate in security agreement especially for frequently turning over collateral.
2. Presumption exists that for inventory constantly turning over you really mean after acquired property.
a. Filtercorp Case- presumption applies to accounts and inventory.
i. Rebuttable presumption
b. Presumption is ineffective for commercial tort claim and consumer goods, unless debtor acquires rights in consumer goods within 10 days of secured party giving value. (9-108)
1. DEF (9-102): what you receive for the disposition of collateral or using up in the collateral.
2. 9-203(f)à attachment of SI gives right to proceeds from 9-315.
a. They don’t need to be described in SA.
b. Must be identifiable proceeds from the collateral attached to SI.
c. Ex. Can require proceeds from sale of inventory to be put in separate account.
d. In a comingled deposit account
i. Lowest Intermediate Balance Rule: Lesser of
1. Amount of proceeds or
2. Lowest daily balance in account between time proceeds deposited and when SP seeks to enforce SI.
ii. LIB Check:
1. Withdrawal comes first from non-proceeds
2. Deposits of non-proceeds do not benefit SP.
e. Insurance coverage of collateralà proceeds. §9-102(a)(64)(E), §9-109(d)(8).
f. Goods partially purchased with identifiable proceeds are also identifiable proceeds.
3. 9-315(a)(1)- SPI continues in collateral unless SP authorized disposition free of SI.
a. (b)(1) comingled goods in 9-336
i. goods that are physically united with other goods that are physically united with other goods in such a manner that their identity is lost in product or mass.