Midterm

Question 1

What is Amercement?

Answer 1

sheriff can be held liable for moneys they failed to collect if they do not make proper efforts to collect (failing to execute a writ of judgment) (Vitale v. Hotel California, Inc.)

Question 2

Chapter 7 Bankruptcy

Answer 2

liquidation; all non-exempt assets are sold and used to pay off all claims in order of priority.

All creditors are generally equal. Tax authority and workers are the exception and are generally paid first.

Question 3

Chapter 11 Bankruptcy

Answer 3

Restructuring. Debtor remains in possession of the property in the estate, including continuing to operate a business, and proposes a plan to restructure its debt.
• Generally used by corporations and not individuals (expensive and complex).
• Creditors are entitled to vote on the restructuring plan.

Question 4

Chapter 13 Bankruptcy

Answer 4

Restructuring. Limited to individual debtors with debts under a certain amount. Debtor must put forth a plan to pay creditors out of disposable income and the plan must be approved by the court.

Question 5

What advantage do secured creditors have in bankruptcy?

Answer 5

Secured creditors maintain their security interest in collateral during bankruptcy.

The creditor has a secured claim in their security interest, and an unsecured debt for anything not paid out of a sale of the collateral.

Question 6

How are unsecured creditors paid out in bankruptcy?

Answer 6

Unsecured creditors are placed into a “pool” and split whatever is left after the secured collateral is sold off and paid to the secured creditors.

Question 7

Automatic Stay

Answer 7

Placed on most collections proceedings as soon as the debtor files for Bankruptcy. Bankr. Code § 362(a)

Question 8

How can secured creditors lift a stay?

Answer 8

Bankr. Code § 362(d)(1)
○ The court must always lift the stay if the trustee or debtor does not provide the creditor with adequate protection (for cause).
○ Even if there is adequate protection, the court must also lift the stay if:
§ There is no equity in the collateral that the trustee or debtor might realize for unsecured creditors, and
§ The collateral is not necessary to an effective reorganization.
• Court will not lift the stay if the collateral is necessary for the reorganization of the business.

Question 9

What is a bifurcated claim?

Answer 9

split the claim into part secured and part unsecured. Occurs when the secured collateral is worth less than the claim. Remainder of the claim is unsecured.

Question 10

What are the ways of extending credit?

Answer 10

Banks - mortgage, credit card, loans, etc.
Business - buy something on credit
Services - services provided for credit (pay later)

Question 11

What is attachment under UCC § 9-203(a)?

Answer 11

A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral. Debtor must have rights in the collateral in order to grant interest.

Question 12

When is a security interest enforceable against the debtor and third parties?

Answer 12

(§ 9-203(b))
1) Value has been given
○ Value - the collateral must have value; i.e., the creditor must provide some type of value (e.g. credit or cash, or an irrevocable promise for the credit) for the collateral.
2) Debtor has rights in the collateral or the power to transfer rights to a third party, and
3) Debtor has authenticated a security agreement that provides a description of the collateral
○ Authenticated - signed agreement or other documentation that shows “present intent to adopt or accept a record” that the debtor is providing a security interest (could be an email or other electronic medium as long as the agreement can be authenticated).
○ Description is important for:
§ Debtor - wants to know what he is giving up
§ Creditor - might not want clarity because ambiguity may scare off other parties

Question 13

What is the purpose of a Financing Statement?

Answer 13

filed to give notice to other creditors that there is a security interest (can be filed before the money is loaned).

Question 14

What is required for authentication?

Answer 14

must look at the intent of the parties. Did the parties intend to enter into a security agreement?

Can look at the totality of the documents to show there was a security interest.

Question 15

What is the time requirement for a description of property in a security agreement?

Answer 15

There is no time limit on when a description of property can be included in the security agreement. However, if the agreement is signed, and no description is included, the security interest is not enforceable until that definition is included with the agreement.

Question 16

What is perfection?

Answer 16

the rights of the creditor against the rest of the world.

Question 17

What are the types of collateral?

Answer 17

accounts
inventory
instruments
consumer goods 
general intangibles

Question 18

What is Sufficiency of description (§ 9-108)?

Answer 18

Must be able to show the collateral and make it readily available.
• The agreement can use general terms such as “all equipment” or “all inventory.” This is not good for the debtor, but benefits the creditor.
• Debtor wants the description of the collateral to be very clear, with no ambiguity.

Question 19

What happens when the description of collateral is not clear?

Answer 19

If a description is not clear, such as “all crops on the farm” (does this mean all crops at the time agreement was signed, or all crops grown until the loan is paid off), then you have to determine whether the interpretation of the description is reasonable.
• What is the ratio of value to debt?
• What is the custom in that area?

Question 20

What is the concern regarding “equipment and fixtures” as the description of collateral?

Answer 20

When the collateral is equipment or a fixture, it is implicit that it means the fixtures and equipment at the time the loan is made. If the owner renovates and replaces all fixtures and equipment, it may not be covered unless specifically stated in the security agreement.

Question 21

After acquired equipment/property?

Answer 21

The creditor should use an “after-acquired equipment/property” clause to ensure that everything purchased at a later date will be covered.

Question 22

What is the collection process for an unsecured creditor?

Answer 22

complaint must be filed in the appropriate court and process served on the debtor.
• Must find out what the debtor has through discovery.
• Can also search for property or other things online.

Question 23

What are exemption statutes and what is their purpose?

Answer 23

Prevent Sherriff from seizing certain property under a writ of execution.
• Purpose is to prevent a debtor from having ALL his assets seized and becoming a ward of the state.
• Generally protect things like residence, certain personal property, vehicle, and business equipment up to a certain amount.
• Exemptions do not apply against specific property if that property was placed as collateral in a secured lien.
• Exemption Statutes do not apply in secured transactions, only for unsecured.

Question 24

what is a Lein?

Answer 24

a charge against or an interest in property to secure payment of a debt or performance of an obligation.
• Relationship between particular property (the collateral) and a particular debt or obligation.

Question 25

What are the two key points of usefulness of property as collateral?

Answer 25

1. How much value the creditor can extract from it after default (will it bring anything at resale?),
2. How much leverage the creditor can derive from its ability to deprive the debtor of the property (how much will the debtor be willing and able to pay to keep it?)

Question 26

What is a Deed in Lieu of Foreclosure?

Answer 26

when the debtor agrees to sign over the property to the lender, sometimes with the lender paying some amount if the value is more than the debt, and avoids a foreclosure and all the negative that go with it.
• If there is an option to repurchase/redeem within a certain time, then this could be considered a conditional sale (different rules under Article 9).