1. Creditor Remedies
A. Unsecured Creditors
i. A creditor is anyone owed a legal obligation that can be reduced to a money judgment (BI claims, etc, create creditor/debtor relationships).
a. Unless there is an agreement or statute to the contrary, cr will always be unsec
b. A creditor who has reduced the debt to a judgment and established liability for it is a judgment creditor.
ii. Limitations on Compelling payment:
a. Creditor cannot go on a fishing expedition to discover assets; he must go through the discovery process
i. Questions must be thorough; there is no penalty to dr for telling an incomplete truth
b. Assets can be spent, given away, hidden, or used to pay other creditors between the time when there are discovered and the sheriff can be sent to seize them.
i. Most states have laws against fraudulent transfers, but they are largely ineffective.
ii. Preference: when a debtor chooses to pay one creditor instead of another.
iii. Property can be attached to prevent it from being disposed of, but this remedy is subject to due process standards.
c. Exemption statutes prevent property from being seized under a writ of execution. (Homes, cars, business property, cemetery plots, etc., can all be exempt)
i. Some states do not protect the debtor’s primary home, some do up to a certain $ limit, and some protect it regardless of value.
ii. 15 USCA § 1671 provides that a minimum of 75% of the debtors weekly income is exempt from seizure.
d. Judgments are only effective for a limited amount of time; after that time expires, they must be renewed
iii. Default: the failure to make payment or any other violation of the lending agreement.
iv. In order to collect, unsecured creditors must:
a. Bring a lawsuit
b. Get a Judgment.
i. Once this is done, cr is a judgment cr
a. Jcr is still in line behind sec cr, but is ahead of unsec cr
c. To collect on a judgment, you must:
i. Secure a writ
a. of execution
b. of attachment: debtor owns the property
c. of garnishment: used to seize assets belonging to the debtor that are held by a third party.
i. Classic example is a bank account. If you’re lucky enough to find a bank account, get a writ of garnishment immediately.
d. Find the stuff you can direct the Sheriff to take
i. this usually occurs through formal discovery
e. Sheriff must levy the goods
i. you can have successive levies on a single writ
ii. It is generally reasonable to have the sheriff collect at any time during the day, and some (but not unreasonable) danger may be expected
iii. Good can also be levied by sheriff filing a notice they have been levied
iv. 9102a52: Lien cr: one who has acquired a lien on the property through attachment, levy, or the like.
a. Lcr will have rights superior to those of regular unsec cr.
f. When the writ is returned, the Sheriff can take no more goods on it.
i. Sheriff returns the writ when there is nothing left to reasonably collect, or three months have passed.
ii. Must then get an alias writ or additional writ to get anything more
i. If the creditor can prove that the sheriff has completely failed to perform his duty, he can hold the sheriff liable for failure to collect. This is a fairly rare occurrence—courts are going to be sympathetic to the sheriff.
d. Self Help remedies are generally prohibited to unsec cr
B. Secured Creditors–Generally
i. Sec Cr have all the same remedies available as unsec cr
ii. They also have additional rights as defined in UCC Article 9
a. Rights vary by state, but almost all states use some version of A9
iii. Fed Bankruptcy statutes can also change or modify some of the A9 state rights
iv. Generally, protection statutes do not apply to sec cr
v. Lien: An interest in a property used to secure payment of a debt
a. Security Interest is the most common. It is created by contract and includes mortgages, etc. They are voluntary.
b. Statutory liens are granted by statute or common law (eg, mechanic’s liens). These are not established voluntarily.
c. Judicial Liens are obtained through the judicial process by unsecured creditors
vi. Acceleration: Once a loan goes into default, cr can accelerate it and call for the balance of the loan to be paid immediately
vii. Foreclosure: The process of applying the value of the collateral to the payment of a debt.
a. Foreclosure operates on the ownership of something, not possession (ie, creditor can foreclose, then lease property back to debtor who has remained in possession all along).
b. Types of foreclosure:
i. Judicial Foreclosure: Creditor brings a complaint to foreclose debtor’s right of redemption. Ususally there is no valid defense, but there are ways to stretch the process out for months/years. The debtor does not have to surrender possession
d are completely within the discretion of the court. After the judgment has been entered, courts are more likely to appoint a receiver, but it is still comparatively rare.
b. Assignment of Rents: If the property may be rented, the loan will usually call for an assignment of rents as additional security. On default, the lender becomes entitled to possession and the rents due the dr. Courts are also reluctant to enforce this.
iii. Personal property (9609): can be repoed as soon as there is default
a. Property can be repossessed, or
b. Cr can without removal, render equipment unusable and dispose of collateral on a debtor’s premises (9610)
c. Self-help is allowed if it will not disturb the peace
i. The duty to not disturb is non-delegable, and cr is liable for any breach by repo man
a. A9 commentary specifically notes it is up to common law to define breach of peace
ii. Salisbury Livestock Co. v. Colorado Central Credit Union: Collat was on dr’s father’s land. Repo man went onto that land (trespassed) and repoed. Ct held that whether or not trespass was a breach of peace was for jury to decide
iii. A9 Allows trespass to repo in some cirs, unless there is a potential for imminent violence.
iv. These are breaches of peace:
a. Taking a cop to secure voluntary handing over of the property, even if cop doesn’t say anything and is there only to prevent violence. (Walker v. Walthall)
b. Repo man went to get item and was told to leave. He went back a month later with two burly guys and took the property again, over the protest of the dr’s son who was too intimated to do anything other than protest (Morris v. First nat’l Bank and Tr.)
c. Dr asked repo to leave, and he got a cop to tell dr they’d go to jail if they interfered. (Marcus v. McCollum)
d. Cutting a chain to unlock a fence, leaving dr’s other equipment unsecured (Laurel Coal v. Walter E. Heller & Co.)
v. These are not breaches of peace: