Law 4

A transaction in which the payment of a debt is gauranteed by personal property owned by the debtor

intrest in which secures the payment

The person or party that holds the secured interest

secured creditor

The person who owns the personal property and has an obligation to the secured creditor

the agreement in which the debtor gives the secured interest to the secured party

The personal property that is the subject to the security interest

• - 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"

• - description of the security arangement
• - description of the collateral clearly and specifically
• - MUST BE SIGNED BY THE DEBTOR

- 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

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

Exists when the seller retains a security interest in the thing being sold

The party that firsts perfects its interest will have the first claim to the security interest

• filing
• possession
• Automatic

• 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

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

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

• 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

• 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

• can be used as collateral
• typically INVENTORY

Secured creditor has automatic interest in proceeds for TEN days if debtor sells the collateral

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

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

• "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

• 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

• UCC does not define default
• DEfault is defined by the parties in the security agreement

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

• 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

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

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

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

• 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

• 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

• 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

• 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

• guarantor is secondarily liable
• agrees to pay the debt only after the debtor defaults
• statue of frauds - must be in writing

Take over any additional rights the creditor had against the debtor

• 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

• 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

potential bankruptcy filers must undergocredit counseling prior to filing

• 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

• 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

• 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

• court order proclaiming the case is accepted for further proceedings
• automatic in involuntary petitions
• debtor can ibject to involuntary petitions

• Debtor must appeat and answer questions about assets and obligations
• enables creditors to question debtor under oath regarding financial status

• Elected by the creditors
• becomes the legal representative of the banruptcy estate
• responsible for gathering and selling assets and distributing proceeds to creditors

• 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

• 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"

made with the intent to :hinder" delay or defraud creditors with the previous one year period, often inadequate consideration

• 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

• 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

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

• 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

• Petition/ automatic stay
• order for relief
• meeting of the creditors
• apointment of trustee
• define the bankruptcy estate
• assign priority distribution
• discharge