Law 4

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  1. Secured transaction
    A transaction in which the payment of a debt is gauranteed by personal property owned by the debtor
  2. Secured Interest
    intrest in which secures the payment
  3. Secured Party
    The person or party that holds the secured interest

    secured creditor
  4. Debtor
    The person who owns the personal property and has an obligation to the secured creditor
  5. Security Agreement
    the agreement in which the debtor gives the secured interest to the secured party
  6. Collateral
    The personal property that is the subject to the security interest
  7. 3 Requirements
    • - Written Agreement
    • - secured party gives value
    • - debtor has a right to or in the property

    At the time when all three are met, the security interest "attaches"
  8. Written agreement
    • - description of the security arangement
    • - description of the collateral clearly and specifically

    - Decription of the repossesssion process is helpful, but not required

    EXCEPTION - written agreement is not needed if the secured creditor is in possession of the colateral - possession is proof enough that the agreement exists
  9. Debtor has a right to the collateral
    debtor must have and retain ta legal right to own or use the property after signing the security agreement

    title does NOT pass to the secured party
  10. Purchase Money Sercurity Interest
    Exists when the seller retains a security interest in the thing being sold
  11. Perfection
    The party that firsts perfects its interest will have the first claim to the security interest

    • filing
    • possession
    • Automatic
  12. Prefection by filing
    • File a "financing statement" with a state agency
    • names and addresses of all parties
    • Description of collateral
    • signature of the debtor

    statements are valid for 5 years with 5 year extension
  13. Perfection my possession
    If the debtor gives the creditor the collateral to hold untill the debt is paid off, the security interest is perfected when the collateral is tranferred

    • this eliminates the chance that collateral will be used to seecure another loan
    • no witten security agreement needed
    • no financing statement needed

    often impractical because the debtor cannot benefit from the use of the collateral

    Interest in Negotiable instruments can only be perfected by possession
  14. Automatic Perfection
    PMSI of consumer goods perfect automatically

    consumer good = a good used or bought for the use primarily for personal, family or houshold purposes

    If the good is bought for business use, security interest does not perfect automatically - secured party must file a financing statement

    If the good is a fixture of motor vehicle, security intereset does not perfect automatically even if for household use
  15. Perfection of Movable collateral
    • security interest that has been perfected in one state will transfer to another state for a period of 4 months from the date that the property is brought into the state
    • secured party may re-perfect the interest in the new state If not, the secured party losses protection
  16. Perfection of Automobiles and Boats
    • Each state has created it;'s own laws for perfection
    • generally, secured party make a notation of its interest on the certificate of title
    • future creditors know to examine the certificate of title
  17. After-aquired property
    • can be used as collateral
    • typically INVENTORY
  18. Proceeds
    Secured creditor has automatic interest in proceeds for TEN days if debtor sells the collateral
  19. TERmination
    IF the secured party has filed a financing statement and the debtor has repaid the secured party, the secured party must file a termination statement within one month after repayment
  20. What happens when the debtor sells the collateral
    General rule

    • the secured creditor continies to have a secured interest in the collateral
    • creditor can seize the collateral from the buyer
    • or can seize the proceeds from the debtor if within 10 days

    Two exceptions
  21. BOCB Exception
    • "buyer in teh ordinary course of business" can take the goods free and clear of any security interest
    • even if the security interest has been perfected

    • BOCB is someone who buys from a merchant
    • can be business or consumer
  22. Consumer goods exception
    • Buyer of consumer goods takes the goods free and clear of a security interest if:
    • - buyer is unaware of the security interest
    • - purchases the goods for personal use AND
    • - purchases the goods before the secured party files a financing statement

    This is why companies still file a financing statement for PMSI to protect themselves from subsequent buyers
  23. Default
    • UCC does not define default
    • DEfault is defined by the parties in the security agreement
  24. Remedies - Secured Creditor
    Take possession of the collateral
    without breaching the peace - no use of force, trespass, and can seek court order for debtor to turn over the collateral

    • The creditor can then sell or retain the collateral
    • if the creditor sells, must seek to receive best price in a commercially responsible manner then apply the proceeds to the debt
    • If creditor retains the collateral, this fully satisfies the debt, debtor must agree to the retention
  25. Remedies - Secured Creditor
    Ignore rights
    • Ignore the rights in the collateral and sue on the underlying debt
    • seldom done unless the collateral has declined in value and the debtor has other assets
    • defeats the purpose of requiring a security agreement to begin with
  26. Unsecured creditors
    Statutory Liens
    A lein is a claim to property, or the proceeds of the sale of the property, must be settled before the property or proceeds are distributed to other creditors

    • Created by state law to protect those who provide services to improve real or personal property
    • to make sure they get paid for their services
  27. Mechanics Leins
    When a person hires a worker to make improvements on or to real property, but is unable to pay the worker, the worker can create a mechanics lien of the improved real property

    • File a written notice of the lien with the county clerk within a specific time period
    • for MD - provide notice to owner within 120 days of completion
    • File a notice with county clerk within 180 days of completion

    • Lienholder cna foreclose on the property to satisfy the lien, following all statutory foreclosure requirements
    • OR
    • Lienholder can wait until property is sold, and receive amount due at the time of transfer
  28. Artisans' liens
    Claim on personal property

    • Work must be performed by an agreement of the parties
    • Lien can only attach t the "thing" tat is worked on
    • Possession - if the worker returns the item to the owner, the lien is lost

    If owner doesn't pay, Leinholder can sell the item to satisfy the debt, and give excess proceeds to the owner
  29. Attachment
    • Court order permitting sheriff to seize the debtor's property
    • Property comes under the control of the court
    • Used before judement to prohibit debtor fro the selling or hiding the property in an attemt to avoid paying the debt should he lose - must to be reason to believe the debitor would sell or hide the property
    • checking and savings accounts, dertificate of deposit, real property, personal property
    • Notice - Secured parties do not need an attachment order because they already have the right to repossess the property
  30. Writ of Execution
    • Judicial order authorizing the sheriff to seize and sell any of the debtor's real or personal property within the courts geographic jurisdiction
    • purpose is to enforce a judgement awarded by the court
    • Obtained after the creditor successfully seues the debtor, but the debtor does not pay the judgement
    • sheriff sells the seized property, pays the creditor the amount of the judgement, and returns the remainder to the debtor

    • Some individual debtor property is exempt for seizure, up to certian amounts
    • Homestead exemption
    • household goods
    • clothing
    • equity in a vehicle
    • tools needed to carry on a trade
  31. GArnishment
    • Judicial order that satisfies a debt by seizing a debtor's property being held by a third party
    • Usually directed toward a bank or an employer
    • Garnishment of wages is limited by federal and state laws using complicatedschemes of formulae and exemptions
  32. Suretyship
    • Surety is also called a "co-signer" or an accomodation party
    • Primarily liable
    • Surety agrees to pay the debt, even if debtor does not default, or is not even asked
    • joint and several liability
  33. Guaranty
    • guarantor is secondarily liable
    • agrees to pay the debt only after the debtor defaults
    • statue of frauds - must be in writing
  34. Subrogation
    Take over any additional rights the creditor had against the debtor
  35. Chapter 7 Liquidation
    • Assets are gathred and sold
    • proceeds used to pay debts of the debtor in priority order, to the extent there are funds to do so
    • Unpaid debts are discharged - no loner any legal obligation to pay them
    • Exceptions to protect debtor from becoming penniless
    • Exceptions to protect certain types of creditors
  36. Means Test
    • Motion for liquidation can be dismissed if
    • debtors incmoe is greater than the median state income AND
    • Debtor can affrd to pay $100 per month over a priod of 5 years toward paying own debts
  37. Mandatory Credit Counseling
    potential bankruptcy filers must undergocredit counseling prior to filing
  38. Involuntary Petition
    • creditors can force a debtor into bankruptcy
    • if fewer than 12 creditors any one creditor(or group of creditors) with an amount owed of at least 14,425 can file
    • if 12 or more creditors at least 3 creditors must join the petition with 14,425

    farmers, insurance companies, banks, and not for profits are protected from involuntary petition
  39. Automatic stay
    • Moratorium on creditor litigation
    • Everything stops

    Bankruptcy court will handle everything through the bankruptcy process

    • Exceptions:
    • Paternity, Alimony, Child support
    • tax proceedings
    • tenant evictions
    • criminal proceedings
    • secured creditors if they can show their collateral needs to be protected against spoilage or rapid decline in market Value
  40. Petition
    • All property aof the debtor as of the date of the filing of the petition, becomes part of the bankruptcy estate
    • the estate also captures proceeds received by he debtor within 6 months after the filinf of the petition - gifts, inheritance, life insurance proceeds, property from divorce settlements
    • earned income after the filing date is not included in the bankruptcy estate
  41. Order for Relief
    • court order proclaiming the case is accepted for further proceedings
    • automatic in involuntary petitions
    • debtor can ibject to involuntary petitions
  42. Meeting of the Creditors
    • Debtor must appeat and answer questions about assets and obligations
    • enables creditors to question debtor under oath regarding financial status
  43. Appointment of the Trustee
    • Elected by the creditors
    • becomes the legal representative of the banruptcy estate
    • responsible for gathering and selling assets and distributing proceeds to creditors
  44. Define the banruptcy estate
    • determine the amount of exempt property (that the debtor gets to keep
    • check for voidable transfers - the trustee has the authority to undo these transfers and bring the property back into the bankruptcy estate
  45. Preferential transfers
    • made within 90 days prior to fillin ghe petition, that allows any creditor o receive an amount that would be unfairly large compared to what other creditors would receive in bankruptcy
    • Or made within one year to "insiders"
  46. Fraudulent Transfers
    made with the intent to :hinder" delay or defraud creditors with the previous one year period, often inadequate consideration
  47. Assign Priority of distribution
    • Secured creditors have the fisrt claim
    • Priority unsecured creditors
    • general unsecured creditors

    • Amount of debt or value of collateral, whichever is less
    • Amount not satisfied by collateral becomes unsecured claimall secured creditors will get paid before the next class of creditors
    • If not enough assets, secured creditors will be paid on a pro rata basis
  48. Priority unsecured Creditors
    Know order
    • 1 Alimony and child support
    • 2 Lawyer fees and trustee fees
    • 3 wage claims ( 11,725 per employee earned 90 days prior to filing the petition
    • 4 employee benefit plan contributions (11,725, 180 days)
    • 5 consumer deposits
    • 6 Most tax claims
    • 7 Claims from DUI injuries
  49. Discharge
    any debts remaining unpaid after all assets are distributed are discharged unless they are nondischargeable

    • A creditor mayobject to dischargeof the debt if the debtor
    • made false statements about financial conditions to obtain credit
    • concealed property or made fraudulent transfers
    • falisified, concealed or destroyed records of the financial condition
    • failed to account for any assets
    • failed to answer creditor's questions
    • refused to follow a court order
  50. Nondischargeable debt
    • tax claims within 3 years of petition
    • government fines
    • willfull or malicious injury to persons or property
    • fraud, larceny, embezzelment claims against a fiduciary
    • alimony, child support
    • debts the debtor did no disclose on the petition
    • credit card charges within 70 days prior to petition
    • student loans
    • DUI judgements
  51. Steps to bankruptcy
    • Petition/ automatic stay
    • order for relief
    • meeting of the creditors
    • apointment of trustee
    • define the bankruptcy estate
    • assign priority distribution
    • discharge
Card Set:
Law 4
2011-10-31 05:37:53

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