Chapter 29 - Creditors rights

Question 1

Secured creditor definition

Answer 1

Creditor whose loans are backed by collateral

Question 2

Unsecured Creditor definition

Answer 2

Creditor whose loans are not backed by collateral

Question 3

Lien definition

Answer 3

Claim against specific property to satisfy a debt. Take priority over other claims against the same property.

Question 4

Mechanics Lien

Answer 4

Lien on another’s real property to ensure payment for the repair and improvements of the real property. Lienholders can foreclose on the real estate and sell it, with the proceeds going to pay the debt and legal fees, then the owner.

Question 5

Artisan’s lien

Answer 5

Possessory lien given to a person who made improvements to another’s personal property without payment. Lienholder retains possession of the personal property. Lienholder can eventually sell property to pay the debt and legal fees.
Ex. Abel takes his TV to Ben to repair it, and Ben doesn’t pay. Abel has the right to hold on to the TV until Ben pays.

Question 6

Judicial Lien

Answer 6

When the creditor sues the debtor for an overdue debt. Rulings are writ of attachment or writ of execution

Question 7

Writ of attachment vs Writ of Execution

Answer 7

Attachment: Creditor seizes debtors property before court has entered judgment. Creditor must get an insurance bond to pay the debtor in the case he wrongfully took the property.
Execution: Creditor seizes debtor’s property after the court says that creditor has won judgment. Sheriff seizes and sells debtor’s nonexempt property.

Question 8

Garnishment

Answer 8

Creditor seizes wages from the debtor that is being held by a 3rd party (debtor’s employer). Wages cannot be exempt from garnishment. Garnishment amount is limited.

Question 9

Forms of valid wage garnishment

Answer 9

1) Child support
2) Spousal support
3) Student loans
4) Unpaid taxes

Question 10

Interpleader

Answer 10

When the debtor tells the bank to not give the creditor any money via garnishment. The bank files an interpleader, giving the money to the court, and lets them decide who to give the money to.

Question 11

Creditor’s composition agreement

Answer 11

Agreement formed between debtor and creditor in which the creditor agrees to accept a lesser sum than owed in full satisfaction of the debt.

Question 12

Suretyship

Answer 12

Contract where a 3rd party (surety) promises to be primarily responsible for the debtor’s obligation. The surety is a cosigner, and creditor can demand payment from surety once debt is due.

Question 13

Guaranty

Answer 13

3rd party guarantor promises to be secondarily liable for the debtor’s obligation. Only agrees to satisfy the debt after the principal debtor defaults. Guaranty must be in writing.

Question 14

General rule for Surety/Guaranty Defenses

Answer 14

Surety or Guarantor can assert any defenses available to the debtor.

Question 15

Defenses Surety/Guarantors cannot take; exceptions to general rule

Answer 15

1) Incapacity/Bankruptcy: only debtor can use
2) Statute of Limitations: Surety/Guarantor cannot use statute of limitations (4 years) as a defense.
3) Fraud

Question 16

Rights of a Surety/Guarantor after paying debt

Answer 16

1) Subrogation: Guarantor/Surety now stands in the place of the creditor after paying off debt, has all same rights. Can sue the debtor for the money
2) Reimbursement: Legal right to receive all money from the debtor
3) Contribution: the right from a co-surety (more than one surety) who pays more than their proportionate share of debt to recover the excess from other co-sureties.

Question 17

Co-Surety and requirements to be one

Answer 17

Definition: One who jointly assumes liability with another party
Must be in writing

Question 18

Homestead Exemption and exceptions

Answer 18

Debtor may retain family home, free from the claims of unsecured creditors in bankruptcy.
Exceptions:
1) Bank (mortgage)
2) Mechanics Lien
3) Government if you don’t pay taxes

Question 19

Exempt Personal Property

Answer 19

1) Household furniture up to a certain dollar amount
2) Clothing/personal possessions
3) Vehicles up to a certain value
4) Livestock and pets
5) Equipment that debtor uses in business or trade up to a certain value

Question 20

Texas Homestead Exemption

Answer 20

1) Unlimited homestead exemption for a residence of 10 acres in the city, 100 in the country (200 for families).
2) Can exempt entire value of one vehicle per licensed household member, and one for a non-licensed if someone else uses it for them.

Question 21

Subrogation

Answer 21

Guarantor/Surety stands in the place of the creditor, can sue the debtor to recover payment