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REG > REG: Chapter 6 > Flashcards

REG: Chapter 6 Flashcards

1
Q

Security Interests and Attachment

When does attachment occur?

A
  • Secured party has given value
  • Debtor has rights to the collateral (i.e. has title to the truck that is the collateral)
  • Debtor authenticated the security agreement
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2
Q

Security Interests and Attachment

What type of transactions can be attached?

A
  • Consumer goods
  • Equipment
  • Personal property and fixtures created by contract that secures payment or performance obligation
  • Farm and Agricultural products
  • Consignments
  • Inventory

**Does not apply to **
* Corporate debentures or corporate bonds
* Sale of accounts when part of a sale of the business
* Assignment of promissory notes for collection

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3
Q

Perfection of Security Interests

What are the five methods of perfection?

A
  • Filing
  • Taking control/possession of the collateral (i.e. pawn shop taking the collateral)
  • Automatic perfection (PMSI)
  • Temporary perfection
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4
Q

Perfection of Security Interests

What must be included in a financing statement to perfect its security interest?

A
  • Name and address of the debtor
  • Name of the secured party
  • Covered Collateral
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5
Q

Perfection of Security Interests

When is filing not required for perfection of security interests?

A
  • The security interest is perfected by control
  • The security interest is a purchase money security interest (PMSI)
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6
Q

Perfection of Security Interests

What is perfected security interest by control?

A
  • The secured party becomes the holder, or
  • The securities intermediary agree to comply with the orders that originated by the secured party
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7
Q

Perfection of Security Interests

When does a PMSI occur?

A
  • The person obtains credit
  • The credit is used to acquire property
  • The property is collateral for the debt
  • Unless automatically perfected, the PMSI needs to be filed
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8
Q

Perfection of Security Interests

What is automatic perfection?

A
  • PMSI in Consumer goods are ordinarily automated perfected without filing or possession
  • Filing is not necessary in automatic perfection
  • An assignment that does not transfer a signficant part of the assignor’s receivables

Exception
* If the PMSI on consumer goods is sold to a third-party, the creditor must file a financing statement within 20 days or less

It is not effective when a consumer is buying the consumer goods from another consumer

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9
Q

Perfection of Security Interests

What are the types of collateral where control perfects a security interest?

A
  • Investment property, including securities (Certified and Non-Certified)
  • Electronic chattel paper
  • Letter-of-credit rights
  • Deposit accounts
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10
Q

Perfection of Security Interests

How are security interests perfected?

A

Security interests (instruments, certified securities or negotiable documents)
* For the first 20 days after attachment, perfection is automatic
* After 20 days, the security is unperfected unless the party perfects in other ways
* If the secured party gives up the security to the debtor for certain purposes, then the perfected security will continue for 20 days

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11
Q

Perfection of Security Interests

What is the best way for a negotiable instrument to be perfected against another party?

A

Taking possession of the instrument

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12
Q

Priorities

How will collateral be distributed amont prioritized secured creditors?

A

Priority #1: Consumer purchased the collateral (i.e. inventory) from a merchant in the ordinary course of business (PMSI)
Priority #2: Properly perfected PMSI
Priority #3: Judicial and artisan liens that have become attached to the secured property
Priority #4: Non-PMSI parties (unperfected security by attachment)
Priority #5: General Creditors

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13
Q

Priorities

What happens if the creditor files a financing statement for a PMSI?

A

If a third party purchases goods through the normal course of business, and the goods are part of the PMSI
* If the creditor filed a financing statement, then the creditor can repossess the inventory that was purchased by the third-party consumer
* If the creditor did not file a financing statement, then the credit cannot repossess the inventory from the third party

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14
Q

Priorities

What are the various types of liens?

A
  • Judicial
  • Artisan
  • Mechanic
  • Materialman’s
  • Possessory
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15
Q

Priorities

What is a judicial lien?

A
  • If a court finds that a debtor owes money to a creditor and the agreement is unsatisified, then the creditor can ask the court to impose a lien on the collateral owned and possessed by the debtor
  • If the creditor has PMSI, then the creditor obtain a judicial lien
  • A judgment lien has priority over an unperfected security interest or if a security interest was perfected after attachment of the lien
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16
Q

Priorities

What is a mechanic’s lien?

A
  • Liens that result from repairing property
  • Usually filed by contractors, subcontractors or suppliers that never received payment for the work they performed or materials that they provided on the property
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17
Q

Priorities

What is an artisan’s lien?

A

A lien that permits a worker in a skilled trade to retain possession of a piece of work until it has been paid for

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18
Q

Priorities

What is a Materialman’s Lien?

A
  • A security interest, or lien, that is placed on the title of property to those who are unpaid for work performed
  • A materialman’s lien usually occurs for real property
19
Q

Priorities

What is a possessory’s lien?

A
  • A person who in the ordinary course of business furnishes services or materials with respect to goods may receive a common law or statutory lien to secure payment if the goods are in the person’s possession
  • A possessory lien has priority of a security interest

Exceptions:
* Unless the lien is statutory
* The statute expressly provides otherwise

20
Q

Bankruptcy Administration

What are the various types of bankruptcies?

A

Chapter 7: Liquidation
Chapter 9: Municipalities
Chapter 11: Reorganization for Companies
Chapter 12: Farmers
Chapter 13: Reorganizations for Individuals
Chapter 15: Cross-border insolvencies

21
Q

Bankruptcy Administration

What are the requirements for filing an involuntary bankruptcy petition for Chapter 7 and 11?

A
  • Less than 12 creditors: 1
  • More than 12 creditors: 3
  • Total unsecured claims: $18,600
22
Q

Bankruptcy Administration

What are the conditions for a creditor to file an involuntary bankruptcy petition?

A
  • The debtor is not paying the undisputed debts as they become due
  • 120 days before the filing, a custodian has been appointed, or took possession of the property
23
Q

Bankruptcy Administration

What type of costs can a debtor receive if they successfully contests an involuntary bankruptcy petition?

A
  • Court and attorney costs
  • Compensatory Damages
  • Punitive Damages
24
Q

Bankruptcy Administration

What industries are ineligible for involuntary bankruptcy petitions?

A
  • Farmers
  • Banks
  • Insurers
  • Non-profit organizations
  • Railroads
  • Persons owing less than $18,600
25
Q

Bankruptcy Administration

What type of industries are not eligible to file under Chapter 7?

A
  • Insurance companies
  • Banks
  • Municipalities
  • Railroads
  • Credit Unions
  • Savings and Loan Associations
26
Q

Bankruptcy Administration

What industries are not eligible to file under Chapter 11?

A
  • Shareholders
  • Commodities and Stock Brokers
  • Insurers
  • Banks
  • Credit Unions
  • Savings and Loan Associations
27
Q

Bankruptcy Administration

When voluntary filing for bankruptcy, is insolvency a requirement?

A

No

28
Q

Bankruptcy Liquidations

What is the order of distribution under liquidation provisions?

A
  • Secured Claims
  • Priority Claims
  • General Creditors/Unsecured claims
29
Q

Bankruptcy Liquidations

What are the order of priority claimants?

A
  • Alimony/Child Support
  • Administrative Expenses
  • Claims from the ordinary course of business after the filing but before the relief was granted
  • Wages up to $15,150/employee within 180 days before filing
  • Employee benefit plan claims
  • Claims of grain farmers or fisherman up to $7,475
  • Claims of undelivered goods up to $3,350 each
  • Tax claims
  • Death and injury claims
30
Q

Bankruptcy Liquidations

What are the types of voidable preferences?

A
  • To or for the benefit of a creditor
  • For or on account of a pre-existing debt
  • During the debtor’s insolvency
  • Within 90 days prior of filing the petition
  • To allow the credit to receive a large portion of its claim than for them having to wait for the bankruptcy distribution
31
Q

Bankruptcy Liquidations

When will a claim not be discharged in bankruptcy?

A

Debts that were incurred under false representations will not be discharged

32
Q

Bankruptcy Liquidations

What are the maximum exemptions of a debtor’s estate?

A

Tools of the Trade: $2,800
Household Goods (Furniture, instruments, etc): $14,875 or $700 per item
Jewelry: $1,8750
Motor vehicle: $4,450

If the asset is less than the maximum amount, the lesser amount is used to determine the calculation

33
Q

Reorganizations

What is the process of a Chapter 11 reogranization?

A
  • A chapter 11 reorganization is not to liquidate
  • 50% of the creditors claims that represent 2/3 of the total amount of the claims must accept the reorganization plan
  • A class of equity shareholders accepts the plan if holders of at least 2/3 of the total amount approve the plan
  • The plan must include full payment of the administrative expenses
  • A creditor’s committee will be created, which will consist of unsecured creditors
  • A trustee is not necessary but one may be appointed by the court
34
Q

Reorganizations

What is included in a Chapter 11 reorganization plan?

A
  • Designated Classes of claims and owners interest
  • The treatment that will be given to each class
  • Which classes will or will not be impaired
  • Allow for treatment of equal members within a class, unless they agree otherwise
  • Adequate method of payment

All classes are not to be treated the same

35
Q

Reorganizations

What other components are included in a Chapter 11 reorganization plan for a corporation?

A
  • The plan must protect the voting rights
  • State that no nonvoting stock will be issued
  • Require that the selection of officers and directors be effected that will protect the parties’ interest
36
Q

Sureties

What is a cosurety?

A
  • A cosurety is when more than one person acts a guantor for the debt to a creditor
  • They are bound to answer for the same debt or duty of a debtor
  • They do not have the sign the same contract
  • They do not have to be aware of the other cosureties existence
37
Q

Sureties

What is a requirement of a guarantee/surety?

A
  • The surety is primarily liable for the debtor’s obligation
  • The guarantee/surety must be in writing
  • A surety cannot force the creditor to collect from the principal debtor
  • A surety cannot force the creditor to proceed in obtaining the debtor’s collateral
38
Q

Sureties

What is a guarantor of collection?

A
  • A guarantor of collection is condition that is established by the surety
  • The creditor is required to obtain collection first from the debtor
  • The guarantor is not liable until the creditor performs due diligence in collection from the debtor
39
Q

Sureties

What happens a surety gurantees a loan based on fraudulent information?

A
  • If the creditor knew about the fraudulent information, then the surety does not need to repay the loan
  • If the creditor did not know about the fraudulent information, then the surety must repay the loan
40
Q

Sureties

What is contribution?

A

Contribution allows the right of a cosurety who has paid more than their share to recover their share for the other cosureties

41
Q

Sureties

What are the legal rights to a surety?

A
  • Right to the principal debtor’s collateral
  • Priority in bankruptcy
  • Rights against other parties indebted in the same obligation
  • Rights against cosureties
42
Q

Sureties

What happens with regard to a surety when the creditor releases collateral/security?

A
  • The creditor interferes with the rights of the surety with respect to the collateral/security
  • The surety is released to the extent of the value of the collateral/security
43
Q

Sureties

What is subrogation?

A
  • Subrogation is the best method of collection from the debtor when the surety pays the entire obligation
  • If the debtor defaults, the surety succeeds to the legal rights of the creditor against the principal, debtor, cosureties or any collateral

REG (15 decks)

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