Default

Question 1

Default

Answer 1

The right of the secured party to proceed against collateral is triggered by default.

Governed by SA. If SA is silent, “default” is generally construed as a failure to pay or perform. Look for look out for late or missed payments, but also look out for waiver by SP.

Question 2

Rights on Default

Answer 2

Generally, if a borrower defaults on a loan that is covered by a security interest, the secured party has a right to sell the collateral and use the funds from the sale to pay itself the amount remaining on the loan.

Secured parties can simply take the collateral if they can do so peacefully.

Or they can file an action in court to force a public sale of the collateral. If self-help is unavailable, the secured party can use judicial process (for example, a replevin action) to get the goods.

Without removal, the secured party may also make equipment unusable and dispose of it on the debtor’s property if the secured party can do so without a breach of the peace.

Question 3

SELF-HELP REPOSSESSION

Answer 3

SP is entitled to take possession of the collateral without judicial process (that is, by “self-help”) if this can be done without a breach of the peace.

Question 4

Breach of the peace

Answer 4

Any conduct by the secured party that has the potential to lead to violence is a breach of the peace.

Generally, physical presence by the debtor (or a representative of the debtor) plus a verbal objection by the debtor over the repossession is enough to create a breach of the peace.

Simple trespass is NOT, but Breaking and entering of a residence is probably a breach of the peace.

Question 5

self help in accounts

Answer 5

• can notify person owning money to debtor to make payment to secured party instead of the debtor- payment will debtor will not discharge the obligation.

Question 6

Consumer transaction

Answer 6

In a consumer transaction, a secured party may not keep the collat- eral in partial satisfaction of the debt and seek a deficiency judgment. The secured party may keep the collateral only in full satisfaction of the debt.

If the debtor has paid 60% of the cash 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 90 days after repossession. If the debtor has paid less than 60%, the general rules, above, apply.