Creditor - Debtor Relationships Flashcards
What is a composition agreement?
Agreement between the debtor and his creditors in which the debtor makes a proportional part payment of his claims and the debtor is discharged from the balance due. The debtor is released from liability only on claims of creditors who voluntarily agree to the compensation. The existence of other creditors who are not parties to the composition agreement does not affect the enforceability of the agreement.
What is an assignment?
Is for the benefits of creditors. It is a voluntary transfer by the debtor of title to all of his/her assets to a third party.
The trustee named by the debtor (1) receives the debtor’s property, (2) converts it to cash, and (3) distributes the cash to the creditors in exchange for their promises to release the debtor.
Assignment is similar to a composition; however, the consent of creditors are not required.
What is a surety?
A legal person contractually liable for another’s debt or default.
What is the difference between a surety and a guarantor?
A surety is primarily liable for the debtors obligation.
A guarantor is secondarily liable
What elements have to be present to form a suretyship?
Suertyship arises by express contract at the request of either the debtor or the creditor.
The elements of a contract, including legal capacity and sufficient consideration must be present.
The statute of frauds requires that a contract to answer for the debt of another be written and signed by the surety.
What are the defenses of a surety?
1) Defense based on the suretyship contract include the following:
a) A valid contract never arose
b) A valid contract arose but the surety exercised to void it
c) Fraud
d) Surety tendered performance
2) Debtor defenses against creditor
3) Special surety defenses
a) creditors release of debtor
b) modification of contract
c) creditors impairment of collateral
What are the rights of a surety?
A) Reimbursement - the right to sue the debtor for amounts paid to creditor.
B) Subrogation - entitles the surety to enforce the debt against the debtor. After payments to the creditor, the surety acquires legal rights to the creditor
C) Exoneration - request that a court compel a capable but reluctant debtor to pay the debt before the creditors collects from the surety
What is a distinction between a surety and s co-surety?
A distinction between a surety and co-surety is that only a co-surety is entitled to “contribution.” Contribution is when the other co-sureties are obliged to contribute their share of the liability to the surety that had to make the full payment. Generally, each surety agrees to a maximum liability, and any amount that is paid that is less than the full debt results in each surety being liable for the percentage of their agreed liability to the total debt.
What is a homestead exemption act?
a debtor’s personal residence (“homestead”) cannot be seized by general creditors. However, this exemption does not apply to a specific creditor who was given a mortgage (“lien”) on the property, nor does it apply in circumstances where the unpaid creditor is the Internal Revenue Service.
What are official bonds and are they an obligation to surety?
Official bonds (also called public official bonds) are required for some public officials that have custody of public funds. The surety that provides the bond will indemnify the governmental entity for a loss from the dishonesty of that official. After making payment to the governmental entity, the surety receives the legal right of subrogation against the official. This means the surety can pursue collection by all legal means against the official.
What are the types of statutory liens?
1) Artisan’s liens - held by repairer or improver of personal property.
2) Mechanic’s liens - liens against real property
3) Baliee’s lien - granted to a common carrier or warehouse to whom the debtor has entrusted goods
40 tax liens - secures payment of taxes owed to a governmental entity.
What us a relative priority of liens?
Usually in the order of their acquisition.
1) Certain liens arise only when possession is obtained and exist only as long as it is retained
2) Concurrent liens arise simultaneously and have equal rank in distribution
3) A government has the power to fix the priorities of liens.
When is a statutory lien enforceable?
A statutory lien is enforceable only as to items to which liens may legally attach.
