|
Overview
In the past debtors who did not pay their debts were
often sent to
prison, exiled, sold into slavery or even put to death. At times even the debtor's
relatives were punished. In the United States, there has been a philosophical shift
to give more protection, at times, a fresh start.
I. Creditors Rights: Collection of Debts -- There
are basic ways that a creditor can collect
A. Lien -- An encumbrance on the debtor's property which limits the
property's transfer.
1. Mechanic's Lien -- placed on real estate that allows the creditor
(lienholder) to force a sale of the property to satisfy the debt
2. Artisan's Lien -- allow a creditor to hold personal property
until a debt for service, repairs, improvements or care is paid
3. Hotelkeeper's Lien -- All
hotelkeepers shall have a lien on all baggage and other property in the
possession of the hotel belonging to guests at the hotel, for the amount of
their proper charges against guests for the hire of rooms or board or other
services or accommodation in the hotel, and shall have the right, without
the process of law, to retain the same until the amount of indebtedness is
discharged. All parties indebted for rooms or board in the hotel may be
summarily ejected by the keeper thereof from the premises upon the keeper
giving to the parties so indebted a written notice of the amount of
indebtedness and the keeper's demand for the same, unless the parties shall
have entered into an agreement with the keeper for a mode and manner of
payment for room or board other than that announced by notice in the hotel,
the right of summary ejectment to be without prejudice to the lien on the
guest's baggage or other property. (Hawai'i Statute)
B. Prejudgment Attachment -- Court order allowing the property to
be taken into custody before a judgment is entered. It protects the creditor by
keeping the property from being sold or wasted before the end of the lawsuit
C. Security Interest -- Creditor may take a security interest in the
debtor's property and if the debtor does not pay the debt as promised, the creditor
may use the collateral as a substitute for all or part of the debt.
D. Bulk Transfer -- (UCC Article 6) A bulk transfer is when a
business sells all or a large portion of its materials or inventory outside the normal
course of business. Creditors are given at least a ten day notice before the
transfer so that they may protect their interests.
E. Fraudulent Conveyance -- A transfer of property to a third party
in order to avoid paying creditors. Creditors may proceed against the property
fraudulently conveyed.
F. Surety -- Creditor may seek payment from a surety if they have
agreed. The surety or guarantor is secondarily liable
G. Foreclosure -- If the loan is secured by real property (e.g.
mortgage payment), the creditor may foreclose on that property. Before the property
is foreclosed (usually through a judicial sale) the mortgagor has the opportunity to
redeem (i.e. satisfy the loan). If the sale occurs the proceeds go first to cover
the costs of the sale, then to the creditor, and if any remains, to the debtor.
H. Writ of Execution -- Court order allowing a sheriff to seize and
sell a debtor's nonexempt property.
I. Garnishment -- Creditors may seek actions
against third parties
(e.g. banks or employers) who hold property or money owed to the debtor.
J. Composition Agreement -- Two or more creditors each agree to
receive a percentage of the amount owed
K. Extension Agreement -- Allows the debtor more time to pay
L. Assignment to a Trustee -- The transfer of some or most of the
debtor's property to a trustee who then sells the property for cash and distributes the
proceeds to the creditors according to their pro rata share
II. Debtor's Rights and Consumer Protection
A. Homestead Exemption -- Allows a debtor to retain a specific
amount of equity in their home
B. The Truth-in-Lending Act -- Requires a lender or seller to
disclose the credit terms, including finance charges
C. The Fair Credit Billing Act of
1974 (the actual statute is here)
(an amendment to TILA) requires prompt posting of all payments and a notice of prospective
finance charges on new purchases
D. The Consumer Credit Protection
Act
E. The Equal Credit Opportunity
Act of 1974 (the actual statute is here) prohibits discrimination
in extending credit
F. The Fair Debt Collection Practices Act
of 1977 or this
annotated site prohibits abusive practices by debt collectors
Comments
by Mary L. Azcuenaga, Commissioner FTC before the California Association of Collectors May
17, 1994
G. The
Fair Credit Reporting Act of 1970 or this annotated site or this annotated site
(amendment to TILA) gives debtors access to the credit reports and the ability to correct
errors in the report
H. Electronic
Fund Transfer Act (the actual statute is here)
I. The Uniform Consumer Credit
Code 1968 adopted by 10 states establishing maximum interest rates and requires full
disclosure to buyers on credit
I. RICO
J. Credit Reporting Agencies
1. Experian
2. Equifax
3. Trans Union
K. 
III. Secured Transactions
A. Overview -- A transaction in which a debtor gives a creditor a security
interest in personal property or fixtures Governed by Article 9, a typical case
involves the creditor giving the debtor (as protection against nonpayment) collateral,
which is a security interest in the debtor's property. If the debtor doesn't pay the
debt, the creditor can use the collateral as a substitute for payment or as another method
to collect the debt. Generally, security interests are given in the actual property,
e.g. a car for a car loan.
B. Pledge -- The oldest and simplest, where the creditor takes actual physical
possession of the property, and if the debtor defaults, the creditor sells or uses the
collateral to satisfy the debt
C. Security Interests -- The law allows the use of security interests that do not
require transfer of possession of the property, i.e. assignments of accounts and chattel
mortgages (a transfer of some legal or equitable rights in personal property or creation
of lien as security for payment)
D. Collateral -- Article 9 of the UCC says that the following types of property
may be used as collateral to secure a loan: goods; documents proving rights (e.g.
commercial paper, securities, bills of lading and accounts receivable); and most other
personal property of fixtures.
E. Requirements for an Effective Security Interest Attachment
Overview -- The security interest must be attached to the secured property (collateral)
in order to be effective. The three requirements of attachment are:
1. A written agreement that sets forth the security interest, describes the
collateral, and is signed by the debtor;
2. The Creditor gives value to the Debtor (Value includes extending credit, from
consideration for contract, or pre-existing credit)
3. The Debtor has rights in the collateral.
No written agreement is necessary when the secured party has possession of the
collateral
A. Perfection -- To make the security interest effective against third parties,
it has to be perfected. Perfection gives the secured creditor priority over
other parties trying to use the collateral to satisfy the debt. The method of
obtaining perfection depends on the type of collateral. The three methods are:
1. Possession -- The method used for pledges and is required for negotiable
instruments or other documents such as stocks and bonds
2. Attachment -- Automatic perfection usually involves a purchase money
security interest (PMSI - UCC 9-107) in consumer other than fixtures or motor
vehicles. Automatic perfection eliminates the need to file financing statements
3. Filing a Financing Statement -- The most common
method of obtaining perfection.
The financing statement must include:
a. Debtor's signature
b. The addresses of the Creditor and Debtor
c. A description of the collateral
It is the responsibility of the secured party to file the financing statement (9-401).
The financing statement is not a substitute for a security agreement.
The financing statement provides only enough information to give other parties
notice of a security interest.
B. Rights and Duties of Secured Parties and Debtors
1. Default -- Failure to make timely payments on a loan
2. Rights and Duties before Default
IV. Minnesota
Secretary of State
A. UCC
Transactions
|
