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6 months is standard, but it can be up to 12 months
Debtor – The party who owes payment or other performance of the secured obligation.
Secured Party – A seller, lender, or other party in whose favor there is a security interest, including a party to whom accounts or chattel paper has been sold.
Security Interest – An interest in personal property or fixtures that secures payment or performance of an obligation.
Security Agreement – The agreement between the debtor and the secured party that creates or provides for a security interest.
Collateral – The property subject to a security interest, including accounts and chattel paper that have been sold.
Tangible and Intangible personal property
Tangible personal property
Equipment, Vehicles, Furniture, Computers, Clothes, Jewelry
Intangible personal property:
Securities (stocks, bonds)
Unsecured and Secured credit
No interest in collateral
If debtor defaults, creditor must sue debtor
Purchaser pledges collateral
Creditor may recover collateral in case of default
Personal Property Subject to a Security Agreement
Written Security Agreement
:1.Clearly describe the collateral so that it can be readily identified.
Debtor must have current or future legal right in or right to possession of collateral.
Rights of secured party attach to collateral.
Creditor has enforceable security interest in property.
Debt can be satisfied out of collateral.
The Floating-Lien Concept
A security interest in property that was not in possession of the debtor when the security agreement was executed.
A floating lien can attach to:
The debtor will be considered in default if they:
Fail to make scheduled payments.
File for bankruptcy.
Breach the warranty of ownership as to the collateral.
Are in violation of any event defined in the security agreement.
The UCC provides the secured party with the following remedies
The secured party may cure the default by taking possession of the collateral.
The secured party may then:
Retain the collateral.(Must notify debtor, unless debtor renounced rights in writing)
Sell or dispose of the collateral and satisfy debt from proceeds.
The creditor may dispose of goods in any commercially reasonable method.
The proceeds must first be applied to:
Reasonable expenses of retaking, holding, and preparing collateral for sale.
Satisfying balance owed.
Satisfaction of any subordinate claims.
Debtor gets surplus.
Relinquishing the Security Interest
The creditor may relinquish his security interest and proceed to judgment to recover underlying debt.
Usually chosen when value of collateral has been reduced below value of secured interest.
Third person (surety or co-debtor) agrees to be liable for payment of another person’s debt.
Surety is also called accommodation party or cosigner.
Surety is primarily liable for paying principal’s debt.
Third person (guarantor) agrees to pay debt of principal debtor if he defaults.
Guarantor is secondarily liable on debt.
Surety means debtor and creditor are equally liable (you are in the same position)
In guarantee, guarantor is secondarily liable on debt
Writ of Attachment
Orders the sheriff to
Seize property in the possession of the breaching party that he or she owns, and
To sell the property at auction to satisfy the judgment.
Writ of Garnishment
Wages, bank accounts, or other property of the breaching party that is in the hands of third parties be paid over to the non-breaching party to satisfy the judgment.
Bankruptcy law is _____ law.
Bankruptcy law is federal law.
There are no state bankruptcy laws.
Article I, section 8, clause 4
Types of Bankruptcy
Chapter 7 – Liquidation Bankruptcy
Chapter 11 – Reorganization Bankruptcy
Chapter 12 – Family Farmer Bankruptcy
Chapter 13 – Consumer Debt Adjustment
These chapters are under UCC Article 9
The Fresh Start
The law gives debtors a fresh start by freeing them from legal responsibility for past debts.
Exceptions: student loans, taxes
Chapter 13 Consumer Debt Adjustment
Confirmation of the Plan: Must: Be in good faith Pass the feasibility test. Be in the interests of creditors
Filing the Petition under Chapter 13
Must allege insolvency or inability to pay debts as they become due
Extension gives longer period to pay debt
Composition provides for reduction of debt
Automatic Stay, Chapter 13
The filing of a Chapter 13 petition automatically stays:
Liquidation bankruptcy proceedings
Judicial and non-judicial actions by creditors to collect prepetition debts from the debtor
Collection activities against co-debtors and guarantors of consumer debts
Obtaining, perfecting, or enforcing liens
Attempts to set off debts
Confirmation of the Plan, Chapter 13
The plan must:
Be proposed in good faith
Pass the feasibility test
Be in the interests of the creditors
Automatic if secured creditors accept plan.
Court may confirm and allow creditor to retain lien.Vote of unsecured creditors not necessary
A discharge is granted to a debtor in a Chapter 13 consumer debt adjustment bankruptcy only after all the payments under the plan are completed by the debtor.
Even if the debtor does not complete the payments called for in the plan, the court may grant the debtor a hardship discharge.
Liquidation Bankruptcy - Chapter 7
The most familiar form of Bankruptcy.
The debtor’s nonexempt property is sold for cash,
The cash is distributed to the creditors, and
Any unpaid debts are discharged.
Any person (including individuals, partnerships, and corporations) may be debtors
Certain businesses (including banks, savings and loan associations, credit unions, insurance companies, and railroads) are prohibited from filing bankruptcy under Chapter 7
Filing a petition (voluntary or involuntary)
Order for relief
Meeting of the creditors
Appointment of a trustee
Proof of claims
Filing a voluntary petition or an unchallenged involuntary petition constitutes an order for relief.
If involuntary petition is challenged, court will decide if relief should be granted.
Also called a 341 hearing
Within 10 to 30 days of the court granting the order for relief, the court will call a first meeting of creditors
Judge will not be present
Debtor must answer questions, but can have counsel
Bankruptcy trustee is elected
Takes possession of property
determines secured, unsecured, and exempt property
Invests, manages, sells, or disposes of property
Distributes the proceeds of the estate
Reports to the court
Debtor’s property that does not become part of the bankruptcy estate.
Many states require the debtor to file a Declaration of Homestead prior to bankruptcy.
Making false representations about his or her financial position when he or she obtained an extension of credit
Transferring, concealing, or removing property from the estate with the intent to hinder, delay, or defraud creditors
Falsifying, destroying, or concealing records of his or her financial condition
Failure to account for any assets
Failure to submit to questioning at the meeting of the creditors (unless excused)
Preferential transfers within 90 days before bankruptcy
Preferential transfers to insiders
Reorganization Bankruptcy - Chapter 11
allows reorganization of the debtor’s financial affairs under the supervision of the Bankruptcy Court.
used primarily by businesses to reorganize their finances under the protection of the Bankruptcy Court.
The debtor usually emerges from bankruptcy a “leaner” business, having restructured and discharged some of its debts
available to individuals, partnerships, corporations, non-incorporated associations, and railroads.not available to banks, savings and loan associations, credit unions, insurance companies, stockbrokers, or commodities brokers.
The creditors holding the seven largest unsecured claimsparticipate in the negotiation of a plan of reorganization, assert objections to the plan, etc
A collective bargaining agreement may be rejected or modified as an executory contract if:
The acceptance method:
1.The plan is in the best interests of each class of claims and interests,
The “cram down” method
Family Farmer Bankruptcy - Chapter 12
Chapter 12 is a reorganization provision of the Bankruptcy Code.
Allows family farmers to reorganize financially.
Gives family farmers added protection not available under Chapter 11.
Consumer Protection Laws
Federal and state statutes and regulations that promote product safety and prohibit abusive, unfair, and deceptive practices.
Consumer Product Safety Act
Federal statute that regulates potentially dangerous consumer products.
Created the Consumer Product Safety Commission (CPSC).
Consumer Product Safety Commission
Prohibits unfair and deceptive practices including:
Bait and switch
Abusive sales tactics
FTC Act: False and Deceptive Advertising
Section 5 of the FTC Act describes false and deceptive advertising as:
Containing misinformation or omitting information that is likely to mislead a reasonable consumer, or
Makes an unsubstantiated claim.
Proof of actual deception not required.
Bait and Switch
Seller advertises low-cost item to attract customers.
Seller pressures buyers to upgrade.
Often refuses to show advertised merchandise.
Discourages employees from selling advertised merchandise.
Fails to have adequate quantities on hand.
Many states have enacted statutes that permit consumers to rescind contracts made at home with door-to-door sales representatives within a set period after signing the contract.
Must send required notice of cancellation to seller.
Federal Consumer-Debtor Protection Laws
1) Truth-in-Lending Act (TILA)
2) Consumer Leasing Act
3)Fair Credit & Charge Card Disclosure Act
4) Equal Credit Opportunity Act
5) Fair Credit Reporting Act
6) Fair Debt Collection Practices Act
Truth-in-Lending Act (TILA) of 1968 (as amended)
Consumer Leasing Act
Fair Credit and Charge Card Disclosure Act of 1988
Amendment to the TILA. Requires disclosure of certain credit card terms on credit- and charge-card solicitations and applications. Provides the following protections: (1) Un-solicited credit cards, (2) Faulty products purchased with credit cards, (3) Lost or stolen credit cards.
Equal Credit Opportunity Act (ECOA) of 1975
Prohibits discrimination in the extension of credit based on: sex, marital status, race, color, national origin, religion, age, or receipt of income from public assistance programs.
Fair Credit Reporting Act of 1970
Fair Debt Collection Practices Act (FDCPA) of 1977
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