Mod 31 Debtor-Creditor Relationships Flashcards
Surety relationship:
Statute of frauds
Signed writing is required for surety’s promise to be enforceable
Surety relationship:
Consideration is present if…
The surety, creditor and debtor are all created at the same time
If the surety comes in after the debtor/creditor relationship is created…
There must be additional consideration going to the surety
Rights of a surety:
Subrogation
After the surety pays the creditor in full, he gets all the creditor’s
Rights
Rights of a surety:
Reimbursement 2
1 The right of the surety to recover from the debtor
2 any money the surety had to pay the creditor after the debtor’s
default
Rights of a surety:
Exoneration 2
1 before the debtor’s default, a surety gets a court order that the
Debtor pay
2 the surety will still be required to pay the creditor if the debtor
Defaults
Co-suretors
2 or more sureties of same debt (even if unaware of each other)
Co-sureties: Right of contribution
Once one co-suretor pays, he may receive a pro rata share
Or contribution form all other co suretors
Contribution is only available to…
Co-suretors
Proportionate liability of each co-suretor, formula
Proportionate liability =
(Amount guaranteed by individual co-suretor)
X (amount paid to creditor amount guaranteed by all co-sureties)
If a co-suretor’s obligation is discharged in bankruptcy…
Their dollar amount should not be considered in determining the
Pro rata share if the other co-suretors
Creditor may do any if the following in any order after the debtor defaults:
Immediately…3
1 demand payment from surety
2 demand payment from debtor
3 go after collateral if there is any
Rights of creditor after default:
Exception guarantor of collection (conditional guarantor), promises to pay only after…
Creditor exhausts all remedies against the debtor
Rights of creditor after default:
Exception: creditor must…
Creditor must give notice of default to guarantor of collection
What are 3 good defenses for a surety?
1 lack of writing or
2 lack of consideration
3 fraud by the creditor
What is always a good defense for a surety?
Payment or tender of performance
Fraud by the debtor is…2
1 Not a good defense for a surety
2 Unless the creditor was aware of the fraud
Surety may not use defenses that are…
Not use defenses that are personal to debtor
3 examples of defenses that are personal to debtor
1 infancy
2 insanity
3 bankruptcy
Any action by creditor which increases the risk of a Surety…
Release the surety to the extent of the increased risk
Any action by creditor which increases the risk of a Surety, releases the Surety to the extent of the increased risk:
A binding…
A binding extension of time by creditor totally releases the Surety
If a creditor delays on collection…
By not agreeing to extend time, the surety is not released
Release of one co-suretor by a Creditor without the consent of other co-sureties…
Increases their risk by the amount of contribution they would have collected
If creditor releases debtor without…
Without reserving rights against surety, surety is released
If the creditor reserved rights against the surety…
The surety is not released
Creditor pre-judgment remedies, define
Actions by creditor prior to receiving judgment
Creditor pre-judgment remedies, 2 types
1 attachment
2 pre-judgment garnishment
Creditor pre-judgment remedies:
Attachment, define 2
1 puts lien on debtor’s property so it’s available if a judgment is
Obtained
2 requires a hearing before judge and creditor may be required
To post bond
Creditor pre-judgment remedies:
Pre-judgment garnishment, define 2
1 places lien on debtor’s property or money in the hands of 3rd
Party
2 so property is available to satisfy a judgment
Creditor post-judgment remedies, define
Actions by creditor after getting a judgment
Creditor post-judgment remedies:
Writ of execution, define 2
1 served by a sheriff on debtor demanding payment of judgment
2) occurs if returned “unsatisfied” creditor can levy on debtor’s property and force a public sale
Creditor post-judgment remedies:
Garnishment, define
Creditor collects money from debtor’s wages or bank accounts
Surety
One who promises to pay creditor if debtor defaults
Fraudulent conveyance is a phony transfer of property…
Phony transfer of property, by debtor to a 3rd party to stop creditors
From attaching it
Fraudulent conveyance is a phony transfer of property by debtor to a 3rd party. The 3rd party is…
Expected to return property to debtor at a later time
Fraudulent conveyance:
Creditors may still…
Creditors may still attach property, upon proof the transfer was fraudulent
Indications of fraudulent conveyance include…3
1 debtor remains in possession of property
2 debtor retains an equitable interest in the property
3 transfer was done secretly
Composition of creditors, define
Agreement between debtor and creditor to discharge the debtor’s
Debts in return for partial payment by debtor
Composition of creditors:
Debts are only discharged when…
Debtor completes all partial payments
A composition of creditors is only binding…
Only binding on creditors who agree to it
Assignment for benefit of creditors, define
Debtor transfers property to trustee to pay creditors on a pro rata
Basis
Assignment for benefit of creditors, Doesn’t require…
Doesn’t require agreement of other creditors
Assignment for benefit of creditors, Doesn’t discharge…
Doesn’t discharge Debtor’s debts
Assignment for benefit of creditors, protects…
Protects assigned property from attachment by creditors
Fair Debt Collection Practices Act
Prohibits abusive, deceptive and unfair debt collection by collection agencies
Fair Debt Collection Practices Act, who does it cover? Who does it not cover?
Only covers collection agencies, not original creditor
Fair Debt Collection Practices Act:
4 actions it prohibits collection agencies from taking
1 disclosing debt to 3rd parties
2 communicating with debtor at unreasonable times
3 communicating with debtor if he has an attorney
4 use of harassing, oppressive or abusive conduct/false representations
Fair Debt Collection Practices Act:
Upon debtor’s written demand…
The collection agency must stop all contact
Fair Debt Collection Practices Act:
Enforced by…
the Federal Trade Commission
Fair Debt Collection Practices Act:
Debtor’s may sue for…
May sue for money damages for violation of the act
Certain property of the debtor is exempt from attachment or garnishment. 2
1 homestead exemption
2 social security benefits
Homestead exemption 2
1 protects debtor’s equity in his residence from attachment by
Creditor
2 no protection against mortgage or against valid IRS tax lien
Social security benefits and disability payments are…
Exempt from attachment or garnishment
If they violate the Fair Debt Collection Practices Act, Collection agencies are only liable for…
Civil liabilities (not criminal liabilities)
