Select Page

Creditor and Debtor Law
University of Toledo School of Law
Fickel, David J.

Creditor Debtor Law Fickel Fall 2013
  Overview
1)      Why secure a loan?
a)      Provides leverage
i)        Business debtors could be taken out of business if the collateral was seized
ii)      Personal debtors could lose their way to work or their way of living
b)      Prevents priority
c)      Loss deductions- allows creditors to repo the property and pay some of the loan owed
2)      If not secured the loan could have unsecured, tax or statutory lien status
 
Parties:
1)      Debtor- ∆- party who owes a sum certain to another, which is to become due
2)      Creditor- Cr-
a)      Secured- party has a secured interest in a piece of property
i)        UCC Art. 9 Secured
(1)   Written K between Cr and ∆ (security agreement)
(2)   Intent of the ∆ to give interest
(3)   Identify prop with certainty
(4)   Identify parties with certainty
(5)   Define rights between this Cr and this ∆
(6)   To be perfected the Cr must let the rest of the world know of security
(a)    Record
(7)   Security must attach- Cr give value and ∆ give rights
(a)    Must be some indication of Cr’s rights
b)      Priority unsecured Cr
i)        Elevated by operation of law
ii)      Only ahead of the unsecured Cr’s not the secured
iii)    Typically- child support; tax debts; and some attny fees
c)      Unsecured- like credit card debt- no collateral property to repo if default
 
Liability
1)      Who:
a)      Single ∆’s- that individual ∆ is liable to the Cr’s
b)      Multiple ∆’s- guarantors and such
i)        Joint and several liability
(1)   J&S is assumed unless K says otherwise
(2)   Cr can elect who they want to go after
ii)      Pships- exhaust Pship assets then personal
2)      Scope:
a)      Generally any property ∆ has a measurable interest in
b)      Exceptions
i)        Exemptions
(1)   Joint bank accounts are not exempt
(2)   See below!
ii)      Trust prop
(1)   Cr can only get to it to the extent the ∆ can
c)      Judgment Proof ∆- ∆ has no valuable assets
 
Procedure
1)      Default
a)      Make sure there is actually default
b)      What establishes Cr’s right to act?
i)        Some kind of agreement which will specify when default occurs
(1)   Non-payment or damage to prop, etc.
ii)      Cr cannot unilaterally accelerate payments unless renegotiation or default
2)      Execution/levy remedies
a)      Civil judicial process
b)      Establish claim first
i)        Then levy amount
c)      Non-bankruptcy (B) levy or execution
i)        Item specific
(1)   No general interest in ∆’s prop
(2)   No general levy on ∆
ii)      Cr bears the burden of identifying interest and specify in writ
iii)    Certain writs only attack certain types of property
iv)    Proceeding in aid of execution- forces ∆ to disclose property interests
(1)   Makes a ∆ come to court and answer question about where his assets are
(2)   Only allowed to judgment Crs
(3)   Only a discovery device- does not create a lien
(4)   Service must be given to ∆
3)      Judgments
a)      Definitions
i)        Rendition- when judge signs order
ii)      Entry- when clerk files order and is public notice
iii)    Judgment= Rendition + Entry
b)      Lifetime
i)        Waiting to levy/ execute because ∆ may be judgment proof
ii)      Dormancy
(1)   Most states say dormancy is a suspension of enforceability
(2)   ORC § 2329.07 gives 5 years then judgment goes dormant
(3)   Ways to prevent
(a)    Collection- only need to start collection to prevent dormancy, do not need to complete
(4)   Ways to cure
(a)    Apply for:
(i)     Extension; renewal; or revival
 
c)      Judgment Lien
i)        Real Property
(1)   How to get one
(a)    Rules vary by county
(b)   Usual way is to file judgment with clerk
(c)    Many states now allow recording of abstract of judgment with county recorder
(d)   OH requires the additional step of filing with clerk or recorder, on top of docketing of money judgment
(2)   Attributes
(a)    Encumbrances that run with the land
(b)   Only bind land in the county in which the lien was recorded
(c)    Only secures Cr’s position to collect against/before other Crs
(d)   Must be perfected through recordation
(e)    Not self-executing
(3)   Permissible uses
(a)    Land
(b)   Fixtures
(i)     Components of a fixture
(ii)   If they can be removed without doing substantial damage to the land
(iii) Intent of parties that the structure become a fixture
(c)    Equitable interest in real property, as long as the interest is identifiable
ii)      Foreclosure
(1)   Process of execution or levy on real property
(2)   How is it conducted? (state law determines)
(a)    Judicially supervised
(i)     Most common
(ii)   $$ goes in marshaling order- senior liens get paid first
(iii) Encumbrances are extinguished
(iv) ∆ will be forced to leave house by sheriff
(b)   Power of sale (private sale)
(i)     Cr’s control the sale- much cheaper
(ii)   Give mortgagor notice of default and may need to record
(iii) Statutory foreclosure- Cr doesn’t file anything
(iv) Sold free and clear of ∆’s interest (but not free and clear of Cr’s interests)
(v)   Encumbrances are not extinguished
(vi) Reduces time and expenses to Cr’s, but process can abuse sale price
(vii)                       No forced eviction as in Judicially supervised sale
(3)   Is the sale commercially reasonable?
(a)    Sale should bring as much money as possible to pay off as many Cr’s as possible.
(b)   Terms the ct will look at to determine
(i)     How was notice given
(ii)   Publicly/ wide spread
(iii) Timing of sale (middle of night v. middle of day)
(iv) Advance inspection

      Must turnover levied upon property
2.        Gee does not have superior right to prop v. Cr
3.        Burdens on Gee do not matter, no matter how big
(ii)     Fiduciary duties to ∆?
1.        No only fair play to all parties
2.        Primary responsibility to turnover prop to Cr
(iii)   Liability for non-performance
1.        Possible contempt and damages
2.        Gee could be liable for the whole amount
3.        Defaulting Gee- could be liable for more than what was originally owed
(iv)   When to garnish
1.        File or delivery
a.        If there is seizure of property then first Cr that identified that prop gets priority
2.        Levy
a.        First in time to seize prop
(v)     How much
1.        Scope of prop
a.        Amount to accrue also ($ to be paid for working)
b.        Gee must make available–J’s split
i.          Service: only prop in hand of Gee at time of service can be reached (OH)
ii.        Answer: all prop coming into possession is included until Gee prepares and answers the writ
(3)     Attachment (Prejudgment)
(a)     Requirements
(i)       Requested in anticipated $ judgment
(ii)     Must have complaint pending seeking $
(iii)   In rem action directed at prop and not ∆
(iv)   Notice to ∆
(v)     Cr must show that there will be bad faith by ∆ by fact specific circumstances showing the ∆ will be misusing or disposing of prop
(b)     14th amendment
(i)       Cr must prove above stated standard
(ii)     Cts don’t want to derive ∆s of their prop w/o due process
(c)     States limits
(i)       Limited causes of actions- certain K claims
(ii)     Always need wrongful actions of ∆
(iii)   Require Cr to post bond when attachment is applied
(d)     Doctrine of relation back: Crs J lien is applied when attachment was applied first- over rules other Cr’s
(e)     Cr usually learns of bad faith action through tips, which Cr has a duty to investigate
(i)       Cr assumes beginning costs
(ii)     Could force ∆ into B
(f)      Ex Parte
(i)       Cr must show that either: (must be irreparable injury)
1.        There is present danger that the prop will be disposed of, concealed, or placed beyond the J of the ct; or
2.        The value of the prop will be impaired substantially if delayed