Debtor-Creditor Relationships Flashcards
What are the rights of the surety/guarantor?
Exoneration
Reimbursement and Indemnity
Subrogation
What is the right of exoneration of the surety/guarantor?
Permits the surety to petition the court to order the creditor by court decree to exhaust recovery against the principal debtor before holding the surety liable.
What is the right of reimbursement and indemnity of the surety/guarantor?
Whenever the surety has fully or partially fulfilled the debtor’s obligation to the creditor, the surety has a right to seek reimbursement from the principal debtor. This right of reimbursement covers all costs that the surety has incurred because of surety agreement.
What is the right of subrogation of the surety/guarantor?
Upon payment, the surety steps into the shoes of the creditor and succeeds in any rights the creditor has. These rights include:
- Creditor’s rights against the principal debtor
- Creditor’s rights to the principal debtor’s collateral held by the creditor or the surety
- Creditor’s rights against third parties
- Creditor’s rights against a cosurety
What is the right of contribution for a surety/guarantor?
Applies when two or more cosureties are liable on the same obligation to the same creditor and, upon debtor’s default, one cosurety pays more than their proportionate share of the obligation. This right entitles the cosurety who has paid to recover the amount paid above the pro rata share from the other cosurety(ies).
What are some events that do not release or discharge the surety from liability?
Insolvency of the principal debtor
Bankruptcy of the principal debtor
Fraud or misrepresentations by the debtor
Principal debtor’s incapacity
Death of principal debtor
Immaterial changes or modifications to loan terms
Failure of creditor to give surety notice of default
Failure of creditor to resort to collateral first
What are some events that do release or discharge the surety from liability?
Release of principal debtor without surety’s consent
Principal debt paid
Surety’s incapacity
Surety’s discharge decree in bankruptcy
Statute of limitations expires
Fraud or misrepresentation by the creditor
Refusal of the principal debtor’s tender
Material alteration by creditor
Creditor’s failure to disclose material facts affects risks of liability
Surrender or impairment of debtor’s collateral
Lack of a written agreement
What are the five requirements for attachment of a security interest?
Writing or record (must include description of collateral)
Signed or authenticated by debtor
Underlying debt
Creditor gives value
Rights or interest in collateral
What is Chapter 7 bankruptcy?
- AKA straight or liquidation bankruptcy
- Can be voluntary or involuntary
- Involuntary petitions can be filed for debtors with 12 or more unsecured creditors whose aggregate claims are $18,600 or more. If the debtor has less than 12 unsecured creditors, only one of these creditors can sign the petition as long as they have debt of $18,600 or more.
- Permitted every 8 years
What is Chapter 9 bankruptcy?
- Allows for the adjustment of debts of an insolvent municipality
- Permits voluntary petitions only by the municipality
- Liquidation of assets is not permitted
What is Chapter 11 bankruptcy?
- Allows for reorganization of business debtor to pay debts
- Can be voluntary or involuntary
- Generally no trustee
- Reorganization plan to be approved by half the creditors with 2/3 of total claims. Must be court approved
What is Chapter 12 bankruptcy?
- Allows for adjustment of debts of a family farmer or family fisherman
- Permits voluntary petitions by the farmer/fisherman only
- Debt adjustment plan is established at a meeting of creditors
What is Chapter 13 bankruptcy?
- Allows for adjustment of debt of an individual with regular income
- Permits only voluntary petitions
- Less than $465,275 of unsecured and less than $1,395,875 in secured debt
- Always has trustee
- Applies only to individuals
- 3-5 year plan, debt discharged if payment is made
- Debtor must have undergone credit/debt counseling within 180 days preceding Chapter 13 petition filing
- Permitted every 6 years
What are voidable preferences?
Transfers of debtor property to creditor from pre-existing debt made within 90 days of filing bankruptcy petition and made while debtor was insolvent
or
Transfers of debtor property to insiders of a business (i.e. family, partner, corporation) for a pre-existing debt within one year of filing bankruptcy petition
What is the order of priority for distribution in bankruptcy?
- Secured parties (perfected first, then unperfected)
- Domestic support (alimony, child support)
- Administrative costs (from bankruptcy)
- Claims arising in ordinary course of business (gap/interim creditors)
- Employee wages earned within 180 days of bankruptcy petition, max $15,150
- Contributions to employee benefit plans within 180 days of bankruptcy petition, max $15,150, less employee wages from step 5 above
- Claims of farm producers and fishermen up to $7,475/creditor
- Consumer creditors (purchase, lease, rental of goods or services for personal, family, or household) up to $3,350/creditor
- Claims of governmental units for various taxes within the last 3 years
- Claims for death or personal injury
- All general unsecured creditors
