Creditor Debtor Bankruptcy Flashcards
What is secured debt?
Secured debt is debt backed or secured by collateral to reduce the risk associated with lending. If the borrower on a loan defaults on repayment, the bank seizes the collateral, sells it, and uses the proceeds to pay back the debt.
Creditor may also sue for breach of contract if repo is inadequate
Ex: Car loan; Pawn shop loan; Home mortgage
What is unsecured debt?
Unsecured debt refers to loans that are not backed by collateral. If the borrower defaults on the loan, the lender may not be able to recover their investment because the borrower is not required to pledge any specific assets as security for the loan.
Creditor’s only remedy is to sue for breach of contract
Ex: Credit card charges; Owing money to plumber
What is a lien?
a legal claim against an asset or assets
What is Mechanic’s Lien (statutory lien)?
a legal claim against a home or other property (real property.
-Creditor improves real property (by providing labor or goods) and
-Is not paid
-Creditor may file a MECHANIC’S LIEN
-If the creditor is not paid, the creditor may foreclose on the real property
-Usually, no “foreclosure”
-Instead, the parties wait until the real property is sold and creditor is paid out of the sales proceeds
-The lien is then “released”
What is Artisan’s Lien (possessory lien)?
-Person/company improves personal property (by providing labor and/or goods), and
-Is not paid,
-Creditor may assert an ARTISAN’S LIEN.
-To assert the lien, the creditor must keep possession of the personal property
What is suretyship?
surety is primarily liable when debt is due
-creditor does not have to pursue debtor first
What is guaranty?
guarantor is secondarily liable
-creditor must wait until debtor defaults and then pursue collection from debtor before seeking payment from guarantor)
What are both liable upon debtor’s default?
Surety and guarantor
What is a mortgage?
A mortgage is a type of loan used to purchase or maintain a home, land, or other types of real estate.
What are two common types of mortgages?
Fixed-rate and ARM (adjustable rate)
What is a fixed-rate mortgage?
-unchanging interest rate
-payments are same for life of loan
What is an ARM (adjustable rate) mortgage?
-usually low rate for 3 years, then rate adjusts
-unaware buyers may be surprised at how much their monthly payment increases
What are two different ways loans can be classified?
Subprime and Prime
What is a subprime loan?
debtor has poor credit rating, or no credit history, a high risk of default
What is a prime loan?
credit history that is anywhere from good to excellent
