Mod 31 Debtor-Creditor Relationships Flashcards by leo Gottlieb

Surety relationship:

Statute of frauds

Signed writing is required for surety’s promise to be enforceable

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Surety relationship:

Consideration is present if…

The surety, creditor and debtor are all created at the same time

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If the surety comes in after the debtor/creditor relationship is created…

There must be additional consideration going to the surety

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Rights of a surety:

Subrogation

After the surety pays the creditor in full, he gets all the creditor’s
Rights

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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

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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

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Co-suretors

2 or more sureties of same debt (even if unaware of each other)

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Co-sureties: Right of contribution

Once one co-suretor pays, he may receive a pro rata share

Or contribution form all other co suretors

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Contribution is only available to…

Co-suretors

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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)

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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

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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

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Rights of creditor after default:

Exception guarantor of collection (conditional guarantor), promises to pay only after…

Creditor exhausts all remedies against the debtor

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Rights of creditor after default:

Exception: creditor must…

Creditor must give notice of default to guarantor of collection

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What are 3 good defenses for a surety?

1 lack of writing or

2 lack of consideration

3 fraud by the creditor

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What is always a good defense for a surety?

Payment or tender of performance

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Fraud by the debtor is…2

1 Not a good defense for a surety

2 Unless the creditor was aware of the fraud

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Surety may not use defenses that are…

Not use defenses that are personal to debtor

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3 examples of defenses that are personal to debtor

1 infancy

2 insanity

3 bankruptcy

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Any action by creditor which increases the risk of a Surety…

Release the surety to the extent of the increased risk

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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

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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)