Creditors, Debtors, and Bankruptcy Flashcards
Failure to pay a debt when it is due
defaults
specific property (such as a car or a house) pledged by a borrower to ensure repayment
collateral
companies that provide credit cards, are not backed by collateral
unsecured creditors
A claim against specific property to satisfy a debt
lien
A statutory lien on the real property of another, created to ensure payment for work performed and materials furnished in the repair or improvement of real property, such as a building
mechanic’s lien
the process by which a creditor legally takes a debtor’s property to satisfy a debt
foreclosure
when the sale is finalized
closing
A possessory lien given to a person who has made improvements and added value to another person’s personal property as security for payment for services performed
artisan’s lien
In the context of judicial liens, a court-ordered seizure and taking into custody of property prior to the securing of a judgment for a past-due debt
attachment
an order that directs the sheriff to seize (levy) and sell any of the debtor’s nonexempt real or personal property
writ of execution
a written statement, made under oath
affidavit
A court’s order, prior to a trial to collect a debt, directing the sheriff or other officer to seize nonexempt property of the debtor. If the creditor prevails at trial, the seized property can be sold to satisfy the judgment
writ of attachment
A legal process used by a creditor to collect a debt by seizing property of the debtor (such as wages) that is being held by a third party (such as the debtor’s employer)
garnishment
An agreement formed between a debtor and his or her creditors in which the creditors agree to accept a lesser sum than that owed by the debtor in full satisfaction of the debt
creditors’ composition agreements
An express contract in which a third party to a debtor-creditor relationship (the surety) promises to be primarily responsible for the debtor’s obligation
suretyship
A person, such as a cosigner on a note, who agrees to be primarily responsible for the debt of another
surety
A person who agrees to satisfy the debt of another (the debtor) only after the principal debtor defaults
guarantor
Making any material modification to the terms of the original contract without the surety’s consent will discharge the surety’s obligation
Actions That Release the Surety and the Guarantor
Material modification
If a creditor surrenders the collateral to the debtor or impairs the collateral without the surety’s consent, these acts can reduce the obligation of the surety
Actions That Release the Surety and the Guarantor
Surrender of property
Naturally, any payment of the principal obligation by the debtor or by another person on the debtor’s behalf will discharge the surety from the obligation
Actions That Release the Surety and the Guarantor
Payment or tender of payment
are personal defenses, which can be asserted only by the person who is affected
Defenses of the Surety and the Guarantor
Incapacity and bankruptcy
The surety cannot assert the statute of limitations as a defense
Defenses of the Surety and the Guarantor
Statute of limitations
If the creditor fraudulently induced the person to act as a surety on the debt, the surety or guarantor can assert fraud as a defense
Defenses of the Surety and the Guarantor
Fraud
The right of a person to stand in the place of (be substituted for) another, giving the substituted party the same legal rights that the original party had
right of subrogation
The legal right of a person to be restored, repaid, or indemnified for costs, expenses, or losses incurred or expended on behalf of another
right of reimbursement
A joint surety; one who assumes liability jointly with another surety for the payment of an obligation
co-sureties
The right of a co-surety who pays more than his or her proportionate share on a debtor’s default to recover the excess paid from other co-sureties
right of contribution
The part of the purchase price of real property that is paid in cash up front, reducing the amount of the loan or mortgage
down payment
A written instrument that gives a creditor (the mortgagee) an interest in, or lien on, the debtor’s (mortgagor’s) real property as security for a debt
mortgage
the creditor
mortgagee
the debtor
mortgagor
has a fixed, or unchanging, rate of interest, so the payments remain the same for the duration of the loan
fixed-rate mortgage
the rate of interest paid by the borrower changes periodically
adjustable-rate mortgage (ARM)
A provision in a mortgage loan contract that requires the borrower to pay a penalty if the mortgage is repaid in full within a certain period
prepayment penalty clause
A form of property insurance that protects the home of the insured person and its contents against losses
Homeowner’s insurance
Insurance that compensates a lender for losses due to a borrower’s default on a mortgage loan
mortgage insurance
A proceeding in which a mortgagee either takes title to or forces the sale of the mortgagor’s property in satisfaction of a debt
Foreclosure
a postponement of part or all of the payments on a loan for a limited time
forbearance
A formal contract between a debtor and his or her creditors in which the parties agree to negotiate a payment plan for the amount due on the loan instead of proceeding to foreclosure
workout agreement
A sale of real property for an amount that is less than the balance owed on the mortgage loan, usually due to financial hardship
short sale
A law permitting a debtor to retain the family home, either in its entirety or up to a specified dollar amount, free from the claims of unsecured creditors or trustees in bankruptcy
homestead exemption
The sale of the nonexempt assets of a debtor and the distribution of the funds received to creditors
liquidation
One whose debts result primarily from the purchase of goods for personal, family, or household use
consumer-debtor
A person appointed by the court to manage the debtor’s funds in a bankruptcy proceeding
bankruptcy trustee
The document that is filed with a bankruptcy court to initiate bankruptcy proceedings
petition in bankruptcy
A government official who performs certain administrative tasks that a bankruptcy judge would otherwise have to perform
U.S. trustee
A court’s grant of assistance to a complainant. In bankruptcy proceedings, the order relieves the debtor of the immediate obligation to pay the debts listed in the bankruptcy petition
order for relief
In bankruptcy proceedings, the suspension of almost all litigation and other action by creditors against the debtor or the debtor’s property
automatic stay
In bankruptcy law, a doctrine that protects secured creditors from losing their security as a result of an automatic stay
adequate protection doctrine
property jointly owned by married persons in certain states
Community property
In bankruptcy proceedings, a property transfer or payment made by the debtor that favors one creditor over others
preference
In the context of bankruptcy, a creditor who has received a preferential transfer from a debtor
preferred creditor
an individual, partner, partnership, corporation, or officer or director of a corporation (or a relative of one of these) who has a close relationship with the debtor
insider
An agreement between a debtor and a creditor in which the debtor voluntarily agrees to pay a debt dischargeable in bankruptcy
reaffirmation agreement
the creditors and the debtor formulate a plan under which the debtor pays a portion of the debts and is discharged of the remainder
reorganization
a debtor who is allowed to continue in possession of the estate in property (the business) and to continue business operations
debtor in possession (DIP)
the court may confirm the plan over the objections of a class of creditors
cram-down provision
