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

Creditor Debtor Law, Prof Fickel, Fall 2013
·         Article 9 vs. state law vs. bankruptcy law
·         PLED
·         (A) Parties
o   (1) DEBTOR – the borrower or purchaser on credit and now he owes
§  Anyone liable to a claim that is “due or to become due” ß the creditor has performed and you are a debtor right NOW (not just when your loan is due)
·          Debtor status occurs as soon as relationship with creditor is established—even if you get something w/no money down
§  Guarantors, co signers, and multiple debtors ß look out for these where the creditor can look to beyond the debtor to recover
o   (2) CREDITOR – the one who is owed now (goods services) OR in the future (products liability) bc they extended goods and services
§  (a) Secured creditor – UCC Article 9 property perfected secured creditors
·         Debtor has pledged property as security
·         They must follow article 9 to make themselves secured
·         Article 9 Review:
o   (i) There must be a written K btwn D and C (the SA)
o   (ii) It must show intent on part of D to grant the SI in the collateral
o   (iii) It must identify the property w/ certainty
o   (iv) C must perfect the SA by filing properly either:
§  financing statement
§  possession
§  control
o   (v) C must give value
o   (vi) D must have rights in the collateral
o   *if all this happens we have a secured creditor who has priority in the collateral at the point when perfection occurs
§  this means they can repo w/out going thru the courts
§  (b) Unsecured Creditor – no collateral involved, you gave goods based on a handshake
·         They take LAST to get paid
·         they must sue the D to get a judgment (the sec. creditor does not have to)
o   this is their only remedy – establish existence of your debt – levy
§  (c) Priority Unsecured Creditor – they are the top of the unsecured creditor class by statute/law
·         Still beneath secured creditor
·         ex: spousal support, child support, tax claims, zoning use, water use, local municipality utilities
·         (B) Liability – Who is liable? What’s available?
o   Who is liable?
§  Single Debtor
·         easy
§  Multiple Debtors
·         j/s liability, indemnification, co-signors
o   j/s liability—creditor can elect to chase all, some, some subset of debtors
§  several = C has options who to recover from
§  Under Article 3 j/s is assumed unless the K says otherwise
o   co-debtors can argue among themselves for indemnifications
§  Business Associations
·         depends on what type of business it is
·         Pship – you must exhaust assets of the pship until you can go after the individual partners
o   What is available?
§  usually, anything the D “has an interest in”
·         this is not whether D’s name is on the title/uses the property
§  Exemptions
·         exempt property
·         entirety property (only one spouse is liable)
·         trust property (if D isn’t entitled to trust property now, C cant have it either)
·         Joint bank accts – the non D is NOT liable to the C but the C can reach the whole of the joint acct.
§  Judgment proof D = the D has no non-exempt assets
·         (C) Default
o   It’s w/e the agrmt specifies – meeting of the minds, even a handshake
o   Most Default terms:
§  nonpayment
§  filing bankruptcy
§  death of D
§  loss/damage to collateral
§  fraud to the C about the status of property involved
o   BEWARE – D can allege tort if C moves without the D defaulting
§  C cannot unilaterally accelerate the payment w/out modifying the K and if the D is willing to renegotiate the whole K
·         (D) Judgments
o   (1) When does judgment arise?
§  must have public notice à clerk enters into the docket = you are now a judgment C
·         judge just signing the order = a rendition
·         when the clerk makes it part of the public record = an entry
§  a Judgment is a piece of paper, it is NOT self executed, no liens are created, you’ve only memorialized your position w/ respect to the claim
·         no interest or priority in debtor’s property is created—judgment creditor is unsecured until execution
o   (2) Dormancy
§  Common law – judgments are valid for 1 yr and 1 day
§  ORC 2329.07 – judgments are valid for 5 years
§  if it goes dormant, you still have the judgment, but its not ENFORCEABLE
§  C doesnt have to complete execution, just have to sue out writ w/in dormancy period…have to intiate the levy/execution b4 dormancy is up (levy does not have to be complete)
§  If it goes dormant – ask for (i) extension (ii) revival (iii) or renewal of judgment
§  Why wait?
·         the debtor has no assets that are not exempted – he’s judgment proof
·         debtor doesn’t have any valuable assets right now – the real estate might appreciate in value over time
o   (3) Executing a judgment
§  The creditor is expected to adopt a strategy that is reasonable within the goal to be achieved   
·         ex: cant sell the house for a $600 debt and put the kids on the street
§  Test: is their a less intrusive means of satisfying the judgment? 
§  Who monitors all of this to make sure the procedures are followed?
·         the creditors lawyer probably
·         (E) Execution/Levy
o   an informal method is to stop providing the goods/services
o   formal methods are to go thru the courts
o   Execution = the Whole process from writ execution to seizure
§  Levy = the process of seizure
o   (1) Non Bankruptcy State Law Executions/Levy’s
§  it is ITEM SPECIFIC – no such thing as a general writ
§  burden – on the C to identify the property and use a focused writ to seize it
§  Finding property
·         Filing Office
·         Recorders Office
·         Sec of State
·         Proceeding in aid of execution
o   its where you say I want the judge to come in and we’ll put them on the stand and we’ll ask them where all there stuff is
o   it’s a debtor’s exam
o   C must be a judgment C first!!
§  always starts w/ a formal JC not just someone who the D defaulted with
o   this is ju

creditors get together “power of sale”
o   cr’s give notice of default w/ mortgagee’s intent to sell property to D
§  some states require notice to be filed
o   if D never answers cr’s do a public auction like sheriff
o   reduces expenses/time but if doesn’t terminate other JLs
§  2. is sale commercially reasonable?
·         (i) notice of the sale given – newspaper?
·         (ii) timing of the sale
·         (iii) sale conducted
·         (iv) opportunity for advance inspection
·         (v) how it was conducted beyond notice – private bid sale? public auction?
·         *all of this goes to whether or not a deficiency is going to be asserted against the debtor
o   deficiency = how much is still owed by D after sale if it doesn’t bring in enough $$
§  3. what are the debtors redemption rights in this process that would let debtors pay $ to stop the sale (states are all different on how much time they have)
·         D’s rights:
o   can pay debt/end forcl – still have possession rights after the forecl proceedings begins
§  rights end after sold (new deed issued)
·         Judgment à CL the cr got a writ of fieri facias sometimes called a fi fa
o   writ of fi fa impacted chattel
·         When you begin to seize à execution lien (diff from JL’s)
o   the Diff:
§  JL = only perfected by recording cert of judg w/ clerk or abstract of judgment w/ recorders
§  EXL= you need to seize bc its tangible, so you cant record
o   Liquidating exec. liens:
§  writ to seize property
§  writ of garnishment
§  writ of attachment
§  levy/writ of impoundment – sheriff seizes/impounds or exercises dominion/control             
·         must be a specific piece of property
·         most jrdxn require actual physical possession not just D/C
o   Property too big for possession
§  “red tag” notice to world that property have been levied on
§  or make it inoperable
o   Multiple Competing Execution Liens
§  #1 deliver jrdxn
·         delivery of a writ to the sheriff creates a lien on the property – exec. lien attaches based on the time when the writ is first deliver to the sheriff
§  #2 levy jrdxn
·         depends on when the sheriff actually goes to the item and does the levy to seize it or impounds it (OHIO)
§  Ex: A delivered writ on 1/5, B delivered writ on 1/10
·         in a delivery jrdxn A wins
·         if sheriff levies the writs out of order, he’s not liable unless he did it on purpose