Debtor Creditor Relationships Flashcards
What is a lien?
An interest in the debtor’s property, which give the creditor recourse to specific property. The property may be sold to satisfy the debt upon compliance with various state laws.
Describe Mechanic’s lien:
Real property. Secure payment for materials and/or services.
Describe Tax lien:
Federal or state government. Secure payment for taxes.
What is Garnishment?
When court orders 3rd party to turn the debtor’s property (or percentage of the property) to the creditor, until debt is paid.
What is a Homestead exemption?
A specified dollar value in a home that is exempt from creditors. Protects all or a portion of debtors equity in their home. Protection is not universal, basically protects against unsecured creditors and bankruptcy trustees.
What is Fair Debt Collection Practices Act?
Applies to consumer debts. Restricts abusive practices by debt collectors.
What is Truth in Lending Act?
Requires disclosure of credit terms. Annual percentage rate and finance charges.
What is Fair Credit Billing Act?
Gives consumers an opportunity to correct or at least explain credit history.
What is Credit Card Fraud Act?
Prohibits unauthorized use or possession of credit cards, altering or counterfeiting credit cards. Limits card holder’s loss to $50 for another’s unauthorized use of the holder’s card.
What is a surety?
A surety is a person who agrees to perform the obligations of the debtor.
What are compensated surety contracts called?
Bonds
Define Official bond, Fidelity bond, Performance bond:
Official bond: public officials will faithfully discharge duties.
Fidelity bond: securing against employee embezzlement.
Performance bond: Securing for performance of construction contracts.
What is the difference between a surety vs. a guarantor?
Surety is PRIMARILY liable to the creditor.
Guarantor is SECONDARILY liable to the creditor (credit must seek performance from debtor before attempting to collect from a guarantor)
What is required to form a suretyship contract?
Writing is required
Consideration: if contemporaneous action-no consideration, if AFTER the credit agreement is entered into- must compensate.
What are the creditor’s rights?
Creditor may proceeds directly against the surety upon debtor’s default. If creditor has collateral of the debtor, credit may still proceed directly against the surety.
What are Surety’s defenses?
Contract defenses of the creditor (lack of mutual assent)
Personal contract defenses of the surety (bankruptcy of surety, but not bankruptcy of the debtor.
What happens to the uncompensated and compensated surety when material modification to the suretyship agreement occurs?
Uncompensated surety- discharged
Compensated surety- generally must prejudice compensated surety’s interest to be discharged.
What happens if the creditor releases surety or debtor or collateral?
Surety- no further obligation to the creditor.
Debtor without surety’s consent- unless rights against surety have been expressly reserved, the surety’s obligations are released.
Of collateral- Surety’s obligation reduced only by the value of the collateral.
What is reimbursement?
A surety may collect from debtor actual payments made to creditor by the surety.
What is subrogation?
Surety fully satisfied debt, surety “stands in the shoes” of the creditor.
What is exoneration?
Prepayment remedy
Court order debtor to pay debt
Not available if creditor demands immediate payment.
What are co-sureties?
Most than one surety guarantees the same debt.
Each surety is jointly and severally liable up to the amount each agreed to.
If one surety pays more than his/her pro rata share s/he may seek funds from the other sureties.
What happens with a release of a co-surety?
Liability of remaining co-sureties is reduced by the pro rata share of the released co-surety’s maximum obligation.
