Suretyship & Guarantee

Question 1

Surety

Answer 1

Someone who is immediately responsible to the debt if the principal debtor fails to pay. Must be in writting. (Creditor can go directly to ask the surety to pay for the debt instead of the debtor.)

Question 2

Guarantor

Answer 2

Promise to pay the debtor only if the debtor refuse to pay. (The creditor must 1st address the debtor before the turn onto the guarantor)

Question 3

Surety rights

Answer 3

1- Exoneration: request made to the court to compel the debtor to pay the debt.

2- Subrogation: if the surety pays off the loan the now become the creditor and ask the debtor to pay the loan to them.

3- Indemnification: Means once the surety pays the creditor they are entitled to be reimbursed by the principal debtor.

Question 4

What is exoneration (before debt has been paid) in the context of suretyship

Answer 4

The lawsuit to compel the debtor to pay the creditor before the surety makes payment.

The legal action a surety initiates to compel the debtor to pay the creditor directly.

Question 5

Subrogation ( after debt has been paid)

Answer 5

This includes the right to enforce any rights that the debtor had on the creditor (e.g. collateral).

This will be performed after the surety has paid the creditor.

Question 6

Fraudulent conveyance

Answer 6

Debtor illegally transfers property to avoid paying creditors

Question 7

Senarios Court consider fraudulent

Answer 7

1- Transfer to an insider: property is transferred to someone close to the debtor like a family member, business partner, co-worker.
2- Retention of possession or control: If debtor stills control or possess the property after transferring it it could indicate fraud.
3- Secret of Undisclosed Transfer: When the transfer is secret and not made public.

Question 8

Creditor Procedure

Answer 8

Creditor when lending money look for a way to be reimbursed and therefore as the principal debtor to provide someone (surety) who can pay the debt if the are not able to or to give a security interest (collateral such as home) to guaranty.

Creditor who do not have a security interest or mortgage on a debtor property can still obtain a right on that property through legal process. !- Judicial lien and 2- Garnishment

Question 9

Judicial Lien

(lien = hold on property)

Answer 9

Legal claim against the debtor’s property granted by the court. It allows the creditor to have a to property if the debtor fails to pay the debt.

Question 10

Garnishment

Answer 10

Legal procedure use by creditors to collect debts from debtor through property or money that the debtor is owned by a third party.

Example Mr. Jones owes $5,000 to a credit card company . He has a job but hasn’t paid the debt.
The credit card company can request writ of garnishment, directly at Mr. Jones employer , to deduct a portion of his wages each pay period until the debt is paid off. The employer must comply and send the specified amount directly to the (creditor) credit card company.

Question 11

Which of the following statements is(are) correct regarding debtors’ rights?

Answer 11

Federal social security benefits received by a debtor are exempt from garnishment by creditors.

Federal law does not allow creditors to institute garnishment proceedings with respect to federal social security benefits.