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Bankruptcy
University of Oregon School of Law
Coles-Bjerre, Andrea

Bankruptcy

Coles-Bjerre

Spring 2015

Collection Remedies

1. Establish in court that the debt is owed

2. Losing party = judgment debtor

3. Execution

a. Judgment gives successful party (judgment creditor) no interest and no priority in any of the debtors property or income (have to execute to have interest)

b. Creditor remains an unsecured (“general”) creditor until ‘execution’ is obtained

c. Claim has been liquidated (indisputable)

d. Collections begins with a writ (court order)

i. ‘Execution Writ’ or “Writ Fi Fa” or “Writ of Attachment”

1. Orders sheriff to look for non-exempt property and seize it to sell it and pay proceeds to creditor

2. Sheriff either loads it up or tags it for seizure

3. Entire process of seizure is called a “levy” (only at this point do you get an interest in the property)

a. Legally-enforceable debt: one that could be levied (resistence is futile)

ii. Once sheriff has levied upon specific piece of property creditor becomes a ‘judicial lien creditor’ as to that property

1. Public Sale and sold to the highest bidder to pay creditor

2. Remaining proceeds go back to debtor

3. If it is insufficient the process starts over

4. Taking collection might push the debtor into bankruptcy

Turnover Statues

1. Because property is scattered all over the country, world debtor may be ordered to turnover property he possesses or property even if he doesn’t possess it (if it is subject to his control)

2. Debtor will be in contempt if he doesn’t comply

3. All creditor has to do is get necessary information about the asset

Creditor’s Right to be paid and protections of the debtor

1. Just because a contract isn’t enforceable doesn’t mean it unenforceable

2. Some debts are uncollectable

a. Limited assets (so large)

b. Will never be able to pay back

3. Dispute is usually about what is owned

Writ of Garnishment

1. Asset in possession of another person

2. Wages, bank accounts (don’t let debtor withdraw)

Judgment Liens by Recordation

1. Limited to encumbering the debtor’s real estate

2. Obtained by recording a judgment in the county land records where deeds of sale and mortgages are filed. (Fast and Cheap)

a. Prevents resale because no purchaser would buy property with earlier judgment lien

b. Has greatest effect against real property owners

3. Sequestration: Seize and hold specific property of the debtor (often property in which the creditor has a security interest)

Dormancy and Limitations

1. Dormancy: Coma-like state: judgment still exists but is no longer enforceable without being revived

a. Can be cured: usually one year of no enforcement

2. Limitations: SL to enforce a judgment is terminal unless a new lawsuit has been brought in the judgment

a. Typical SL period is 10 years

Debt Collection by Federal Government

1. Federal govt follows special set of uniform procedure for collecting debts (Fed. Debt Collection Procedures Act)

2. Similar to state law

3. Only applies to judgments in favor of federal govt not those merely in federal court

Family Debts

1. Alimony and child support are more difficult debts to collect

2. State and federal govt also get involved

3. Les than ½ are receiving support from noncustodial parent

Voluntary Liens

1. Many creditors make themselves secured creditors by obtaining voluntary liens from their debtors

a. Usually require a writing granting the lien and describing property

2. Those who take security interests are called mortgagees for real property and secured parties for all other property

3. Unsecured creditors don’t have consensual liens

4. Consensual liens are given legal effect against 3rd party only if the secured party gives public notice of its interest, usually through recordation

5. When a creditor has made the filing, it’s lien is said to be perfected (county or state filing system)

6. Gives secured creditor some ability to fence off the property from collection efforts by other creditors

7. Purchase-Money liens: used to furnish the creditor necessary for the purchase of the collateral

8. Non PMSI are second mortgages

9. Sometimes more than 1 creditor may take a consensual lien on a property

10. Consensual can often seize quicker

a. Foreclosure or repossession (some have to go to court for decree of foreclosure)

11. Creditor with secured interest in personal property has 2 ways to satisfy (non judicial) (still has all the remedies of any other creditor)

a. Seize without help of the sheriff or

b. Keep the property in satisfaction of the debt

12. Deficiency judgment: collateral is sold for less than the amount owed

a. Have to sure the debtor for the deficiency

Statutory Liens and Trust Funds

1. State law creates liens by operation of law in favor of certain types of creditors

a. Landlord lien

b. Artisan lien: possessory lien on personal property (state statute usually)

c. Charging lien: given to attorney with respect to proceeds of litigation

d. Mechanics lien: mechanic repairs and can retain possession of the car until you pay

2. Trust fund statutes: make the debtor a trustee of certain property for the favored creditors who are beneficiaries of the statutory trust

Collection in other Jurisdiction

1. CL: filing new lawsuit, summons resulting in new local judgment

2. Uniform Enforcement of Foreign Judgment Act: streamline process – judgments from federal district court are enforceable locally in the state where the court sits using local procedures, can be used in other state by registration with other federal district courts

3. Can be enforced in other countries – difficult because countries courts require showing of reciprocity and US is not a party to any treaty on enforcement

Struggle Among Creditors: Priorities

1. First concern is whether procedure has been done right

2. “First in time, first in right”

3. State law provides no sharing

4. Very little assessment of which creditors are more deserving

5. Key date for determining priority turns on who made some required legal first move – not who has the oldest loan!

a. Usually first to perfect wins

Unsecured v. Unsecur

shment write typically used to attach debts owed to the debtor for the benefit of the debtors judgment creditor

a. Directing the employer to pay the wages to the creditor or into a bank account

b. Garnish bank account or obtain contents of a safety deposit box

5. 2 parts

a. Set of questions designed to determine whether the party served with the writ whether garnishee owes any money to the debtor (if he answers falsely he could be liable to the creditor)

b. Command to the garnishee to withhold payment or return of the debtor’s property pending further court instruction

6. Most states garnishing creditor gets a temporal ‘net’ – time between service of garnishment writ and garnishee’s answer – during which the creditor can hope to “catch” obligations arising in favor or debtor

Debtor’s Protections at State Collection

1. When a debtor really needs protection they’ll file bankruptcy

2. Exemptions (Property that is exempt from being seized)

a. Doesn’t protect property debtor consensually gives for collateral

b. Practically: don’t want to make it so people can’t ever recover and repay – something to continue to build a life on

3. 2 types of Exemptions

a. Property Exempt by type

i. Books, pictures, musical instruments (still limited to a dollar amount)

ii. Health Aids (without a dollar amount)

iii. Cars (Only Certain kinds)

b. If the property is worth less than exemption sheriff won’t take it.

Fraudulent Conveyance and Debtor Assets

Twyne’s Case (1601)

1. Pierce was indebted to Twyne for 400 pounds and indebted to C for 200 pounds

2. C brought an action of debt against Pierce (Pierce being possessed of goods and chattels of value of 300 pounds)

3. In secret Pierce made a general deed of gift of all goods to Twyne in satisfaction of debt

4. After C had a judgment against Pierce and tried to execute the writ, Pierce said all goods belonged to Twyne

5. Signs of fraud

a. Donor continued in possession and used them as his own

b. Made in secret

c. Made pending the writ

d. Trust made between the parties (friends)

6. Let the goods be appraised for the value and take a gift in particular in satisfaction of your debt (not in general)

7. Immediately after the gift, take the possession of them for continuance of the possession in the donor is a sign of trust

8. Gift was in general without exception to anything (apparel included) are suspicious

9. All of the suspicious circumstances together are enough to show fraud