Debtor Default Flashcards
Default
usually controlled by security agreement and includes things like failure to pay and failure to maintain required insurance
*Right to Repossession
Upon default, secured party can:
(a) sue on debt itself
* (b) to take possession of the collateral (if it can be done without a breach of the peace by repo person, debtor, or third party), sell it by private or public sale, and then sue to collect deficiency.
(c) if non-good collateral, to obtain payment directly from the person who owes the debtor
(d) retain collateral and call it all square
*What happens if the repo person breaches the peace?
If repo person breaches the peace, the creditor is strictly liable even if the repo person is an independent contractor.
*If the creditor decides to take possession of the collateral and sell it, how must the sell transpire?
- public or private sale or may keep in a strict foreclosure
All aspects of sale must be commercially reasonable (i.e. party tried to obtain the best price). Look at how hard they tried to get the best price for it (e.g. advertising, contacting people who might buy, etc.)
Notice must be given to debtor, any sureties on the debt, and other secured parties (last one only applies to non-consumer cases) within a reasonable time before the sale.
Sale gives buyer whatever rights the debtor had in the collateral and discharges the security interest under which the sale was made.
*Retention of Collateral In Satisfaction of Debt- consumer goods 60% rule
If debtor has paid 60% of the price on a PMSI in consumer goods or 60% of the loan on a non-PMSI in consumer goods, the secured party must dispose of the collateral within 3 months after repossession or it is a conversion and debtor may recover it.
*Retention of Collateral In Satisfaction of Debt-
In all cases except the 60% rule, collateral may be retained by the creditor in full or partial satisfaction (*except not for partial satisfaction if consumer good) if:
(a) debtor consents to the authentication in an authenticated record after default, or in cases where the debt is being fully satisfied, not object to the retention within 20 days after notice is sent by the secured party; and
(b) secured party sends written notice to debtor (and other secured parties), and if a person entitled to notice objects in writing within 20 days after notice is sent, the secured party must dispose of the collateral and properly disburse the proceeds. (*if no objection, then right to object is waived)
If debtor objects, secured party must dispose of the collateral and properly disburse the proceeds.
- Debtor’s right to redemption
Until secured party has sold collateral or discharged debt by retention of the collateral, the debtor may pay all obligations secured by the collateral plus reasonable to get it back.
*look out for acceleration clauses, where debtor would need to tender entire balance (not just the past due amount) to get back collateral.
*Secured party’s Failure to comply with requirements
secured party liable for damages
*if collateral is consumer goods: minimum 10% of the cash price of the goods plus interest charges to be paid over the life of the loan
if collateral is non-consumer goods, it is just actual damages
*Rebuttable presumption rule
in non- consumer transactions, there is a rebuttable presumption that the value of the collateral is equal to the amount of debt owed and a proper sale would have netted enough to pay off the debt.
*Absolute Bar rule
in consumer transactions, there is an absolute rule that the secured party may not obtain a deficiency judgment even if he can prove that the collateral is worth less than the debt.
*Taking possession of the collateral
a secured party may use “self help” to repossess collateral so long as, during the reclaiming of that collateral, the secured party does not “ breach the
peace”.
Breach of peace can be by any party.
Secured party must also end their reclamation
of the property if, while during the reclamation, the debtor tells the secured party to cease operations.
A secured creditor who hires an independent contractor to perform the repossession with be liable for damages regardless of that designation.
Texas holds secured parties strictly liable for failure to adhere to these guidelines, and may award
the debtor actual damages and, in some cases, punitive damages.
- If debtor properly redeems repossessed property, what right does she have if the creditor does not return it?
If the right to redemption is properly completed, then creditor must give back her property.
Specific performance is available if not. Or actual damages.
*Remedies of debtor against misbehaving creditor
You can sue the creditor; you can ask for an injunction to enjoin the foreclosure or also to force a foreclosure; you can get conversion damages against a creditor who unlawfully repossessed your property
*Debtor’s Liability for Deficiency
Provided the sale was commercially reasonable, the debtor is liable for any deficiency. A court may put a lien on the debtor’s property until the lien is satisfied.
George sells electronic equipment and computers in his retail store. Last January, George financed his
inventory with Ram Bank by giving Ram Bank a security interest in his current and after-acquired inventory.
Ram Bank properly filed a financing statement with the Texas Secretary of State.
On February 1, George ordered five laptop computers from Archway Computers, agreeing to pay for
them in sixty days. George signed a security agreement giving Archway a security interest in the five
computers. Archway filed a proper financing statement with the Texas Secretary of State prior to delivering
the computers to George on February 7.
George sold one of the Archway computers to Wilson on February 10. Wilson paid for the computer
with a $2,000 check.
As of February 25, George had not yet deposited the $2,000 check.
Ram has superior interest in 4 computers bc it and Archway had PSMI on them, but Ram’s was perfected first. Also, Archway did not give notice to Ram that it intended to take a security interest in the collateral.
Wilson has superior interest in computer he was sold bc buyer in the ordinary course of business
Ram had superior interest in the identifiable proceeds bc the check had not been cashed yet.
