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Bankruptcy
University of Oregon School of Law
Werts, Stephen

Bankruptcy
Wertz
Fall 2011
 
I.                   Non-judicial Collection Methods
II.                State Law Debt Collection
a.      Collection Remedies
                                                              i.      Different Ways To Collect
1.     Execution
a.      Establish that the debt is owed
                                                                                                                                      i.      Get a Judgment
1.     The borrower can’t deny the debt anymore
2.     The debt is now liquidated. If the borrower ultimately files bankruptcy, he will get schedules, have to fill them out, and he must say that it is a liquidated debt.
b.     Execution of the Judgment
                                                                                                                                      i.      Until the creditor turns his judgment into a writ of execution, he is still unsecured.
                                                                                                                                   ii.      Take your judgment to the Local Court and the Court Clerk will get you a writ of execution which orders the Sheriff to locate, pick up, and sell whatever personal property is covered by the judgment.
c.      Execution Writ & Sheriff’s Levy
                                                                                                                                      i.      Orders a Sheriff or a Marshall to look for non-exempt property of the judgment debtor, to seize it, to sell it (e.g. sheriff’s sale) and pay the proceeds to the judgment creditor.
                                                                                                                                   ii.      The Sheriff sells the property and pays the creditor. Any remaining proceeds à Debtor
2.     Turnover Orders
a.      Judgment creditor gets the necessary information about an asset and can ask the judge to issue a turnover order, by which the debtor is ordered to turn over the property
b.     Debtor risks imprisonment for contempt if he does not comply.
3.     Other Writs
4.     Judgment Liens by Recordation
a.      Obtained by recording a judgment in the county land records where deeds of sale and mortgages are filed
                                                                                                                                      i.      Ex./ I represent a building owner, and one of the tenants breaches the lease. It takes a long time to re-lease, and there are thousands of dollars in unpaid rents. This particular judgment debtor owns some rental properties. You get a judgment for $100,000 for breaching lease. All you have so far is an unsecured judgment. However, once you record this judgment, you have a lien against real property. This is the equivalent of a writ of execution.
b.     Minority of states also permit such liens on personal property by recording in the UCC
c.      Benefits of this:
                                                                                                                                      i.      Often the fastest and cheapest post-judgment collection step
                                                                                                                                   ii.      Can pursue execution at leisure, knowing that spot in line is secured
                                                                                                                                 iii.      Increased Leverage
1.     If debtor unable to sell the personal property or borrow against the property because subsequent buyers or creditors check the records, may voluntarily settle up.
                                                                                                                                 iv.      Creditors often file judgment liens and wait to see if something shows up.
5.     Dormancy and Limitations
a.      Dormancy
                                                                                                                                      i.      Occurs when judgment creditor fails to seek enforcement of a judgment for a period of time, often one year.
                                                                                                                                   ii.      Judgment still exists but is no longer enforceable without being revived
                                                                                                                                 iii.      Can be avoided by regular (yearly) attempts to enforce the judgment, even if the attempts are unsuccessful.
b.     Expiration of Statute of Limitations
                                                                                                                                      i.      Usually terminal
                                                                                                                                   ii.      Statute of limitations may run regardless of dormancy or attempts at execution – common period is 10 years
                                                                                                                                 iii.      Can avoid this by bringing a new action on the judgment within the limitations period.
6.     Debt Collection by the Federal Government
a.      Very similar to the collection of debts under state laws
b.     Does not apply to enforcement of all judgments in federal courts, only judgments in favor of the federal government
7.     Family Debts
a.      In recognition of the importance of family support payments and the difficulty of their enforcement, there have long been specialized rules for family debts.
b.     These are the most difficult debts to collect. The State will get involved, as you can’t legally discharge child support debts.
                                                                                                                                      i.      Ex./ It’s difficult to deal with in bankruptcy, especially if you have a husband that’s been ordered to pay child support for his two kids, and he loses his job. If he doesn’t file bankruptcy yet, the state files a collection action. The State will pay the cost of the child support, and will get a judgment and do things to enforce the judgment that are unique only to family debts (e.g. take away driver’s license, contracting license until you pay back child support). This drives people into bankruptcy.
c.      Ex-spouses have extensive tools for collecting support
8.     Involuntary Liens
a.      The attempt by general creditors to get a judgment and then to realize on that judgment by taking some asset of the debtor.
b.     This is involuntary because it gives the judgment creditor rights in the debtor’s property without any acquiescence or cooperation from the debtor.
9.     Voluntary Liens
a.      Generally
                                                                                                                                      i.      Many creditors make themselves secured creditors by obtaining voluntary liens from their debtors. If a debtor and a creditor can agree in advance of the collection stage to give the creditor a security interest against real or personal property, then the creditor has a legally enforceable lien without the assistance of court action. The property on which the debtor grants the lien is called the collateral.
1.     Ex./ The home is collateral for the mortgage, and the car is collateral for the car loan.
                                                                                                                                   ii.      This assures the creditor that if the debt is not paid, the lienholder may force

         i.      The most important type of dispute that arises in the enforcement process is the problem of a “deficiency judgment.” If the collateral is sold for less than the amount still owed on the debt, the difference is called a “deficiency.”
                                                                                                                                   ii.      Because the creditor has exhausted the collateral and is this effectively unsecured for the amount of the deficiency, it has to sue the debtor for that amount and scramble for some property to seize, just like any other unsecured creditor.
10.Statutory Liens and Trust Funds
a.      Landlord’s Lien
b.     Mechanic’s Lien / Artisan’s Lien
                                                                                                                                      i.      Ex./ Take your car into an auto shop to pay $2,000 for a new transmission. You owe $5,000 on the car itself. The mechanic finishes the job, but you only have $800 to pay. In this case, the mechanic is first position (even though the bank should technically have priority). This is public policy. It’s not fair to stiff the guy who put the transmission in, which improves the value of the car, which secures the value of the car at the price the loan was given.
11.Exempt Property
a.      Each state protects some property from seizures. Typical examples are the family home and household goods.
b.     States vary widely in the protection they give to debtors, and that protection never extends to protecting a debtor from a secured creditor.
                                                                                                                                      i.      Ex./ By signing a mortgage or a security interest, the debtor waives the right to exempt the collateral—meaning that generous exemptions come into play only if the debtor owns a piece of property outright or has equity in excess of the liens on the property.
12.Collection in Other Jurisdictions
a.      State judgments can be enforced under common law doctrines because the full faith and credit clause of the U.S. Constitution requires each state to recognize and enforce the judgments of sister states, subject to numerous caveats.
                                                           ii.      The Struggle Among Creditors: Priorities
1.     Priorities & Background
a.      First In Time, First In Right
                                                                                                                                      i.      The first creditor to levy on a particular piece of property will have the right to be paid in full form the sale proceeds of that property before any other creditor gets even a single dollar from the sale. The priority, therefore, is on who made some required legal move first, not on who has the oldest loan or who showed up first at the sale of property. The legal move has a lot of names, but the most generic is called “perfection,” which is that state of grace a creditor reaches when its interests in the debtor’s property will prevail over subsequent interests.