8 Remedies of Unsecured Creditors under State Law

Question 1

What are the two primary remedies for unsecured creditors?

Answer 1

1) Self-help remedies (which may be illegal and poses risk to civil or criminal conversion or larceny);
2) Judicial remedies: realistically the only available option.
- contract covenants can be used to lower risk by triggering default before payments actually stop

Question 2

What is the main problem for unsecured creditors?

Answer 2

Finding property which meets the criteria for a judicial lien:

• unencumbered
• nonexempt (or partial if worth it)
• liquid

Question 3

What occurrence must precede a judicial remedy?

Answer 3

Default [on the contract]. Contract covenants can be used to lower risk by triggering default.

Question 4

What are the steps to getting a judicial remedy?

Answer 4

1) Get a judgement against the creditor based on breach of contract;
2) Get the court to issue levy on the property, or garnishment on accounts or wages (subject to % limitations);
3) Get the sheriff to seize the property;
4) Sell the property.

Question 5

What are the limitations on levying property?

Answer 5

Finding property that fits the following criteria:

1) Unencumbered;
2) non-exempt;
3) liquid.

Question 6

How do state exemptions work against secured creditors attempting to levy property?

Answer 6

Exemptions generally do not apply to property subject to consensual liens granting a security interest to attach to the property.