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Flashcards in Ch 14 Deck (54):


Failure to observe a promise of discharge an obligation

Failure to pay debt when it is due



An encumbrance on (claim against) property to satisfy

or protect a claim from payment of debt


Mechanics lien

Statutory lien on real property of another, created to ensure
Payment for work performed and materials furnished

From repair or improvement of property (ex. Building)


Artisan's lien

Security device created at common law

Through which creditor can recover payment from debtor
For labor and materials furnished for repair or improvement
Of personal property


Mechanics lien: homeowner refuses to pay house painter for job. What happens if the painter takes a mechanic's lien against the property?

Painter is the lien holder and real property is burdened
With mechanics lien amount owed

If homeowner does not pay, property can be sold to satisfy
Debt as home owner receives notice of foreclosure


Artisans lien vs. mechanics lien, describe how the artisans lien differs

Artisans lien is possessory

Lien remains in existence as long as lien holder maintains
Possession and lien is terminated when possession is
Voluntarily surrendered


Artisan's lien is possessory

Means lien holder ordinarily must have retained possession
Of property

And expressly/impliedly agreed to provide services for cash
Not credit basis


Similarity with artisans lien and mechanics lien

Modern statutes permit holder of artisans lien to foreclose
And sell property subject to lien to satisfy debt

Holder of lien must provide written notice to owner of property
Prior to foreclosure and sale



Court ordered seizure and taking into custody property
Prior to securing a judgement for past due debt


Affidavit, how is it used by creditors

Written statement made under oath

Used by creditors stating debtor is in default and indicating
Statutory grounds that attachment is sought


Garnishment, 2) what law is it governed by?

Legal process used by creditor to collect debt by seizing
Property of debtor that is being held by 3rd party

such as wages from employer (garnishee)

2) Governed by state law


Creditors' composition agreement

Agreement formed between debtor and his creditors
In which creditors agree to accept lesser sum owed
By debtor in full satisfaction of debt



Written instrument giving creditor an interest (lien on)
Debtor's real property as security for payment of debt


Judicial lien: Writ of execution

Courts order issued after judgement had been entered
against debtor directing sheriff to seize and sell any of
Debtor's non exempt real/personal property

Proceeds of sale used to pay off judgement, accrued interest
And costs of sale

Any surplus is paid to debtor



Under mortgage agreement, the creditor who takes
Security interest in debtor's property



Under mortgage agreement, the debtor who gives creditor
Security interest in debtor's property in return for a mortgage



Express contract where 3rd party to debtor-creditor
Relationship promises to be primarily responsible for
Debtor's obligation



Person who agrees to be primarily responsible for debt
Of another

Ex. Cosigner on note



Person who agrees to satisfy the debt of another (the debtor)
Only after principal debtor defaults

The guarantor's liability is secondary


Surety vs. guarantor contracts, how must they be presented?

Surety contracts can be oral and lender can seek to recover
Payment from surety even if original borrower isn't in default

whereas guaranty must be written, also borrower must default
Before lender can seek payment from guarantor


Right of subrogation

Right of person to stand in place of another

Giving substituted party the same legal rights as the
Original party had


3 rights of surety

1 right of subrogation

2 right of reimbursement

3 right of contribution


Right of reimbursement

Legal right of person to be repaid for costs Incurred on
behalf of another


Right of contribution

Right of co-surety who pays more than her or his
Proportionate share on a debtor's default to recover
Excess paid from other cosureties


Co-surety AKA Joint surety

Person who assumes liability jointly with another surety
For payment of an obligation


Homestead exemption

Law permitting debtor to retain the family home, either
In its entirety or up to specified $ amount

Free from claims of unsecured creditors or trustees in


5 types of exempted personal property

1 household furniture up to specified $ amount
2 clothing, pictures, bible
3 vehicles (up to specified $ amount)
4 livestock, animals, pets
5 equipment debtor uses in business or trade


2 goals of bankruptcy

1 protect debtor giving him/her a fresh start free from
creditor's claims

2 ensure equitable treatment to creditors who are competing
For debtor's assets



Sale of non exempt assets of debtor and distribution
(made by trustee) of Proceeds to debtor's creditors

Ch 7 of Bankruptcy Code provides for liquidation bankruptcy


Consumer debtor

Debtor whose Debts result primarily from purchases made primarily for personal, family Or household use


Petition in bankruptcy

Document that is filed with bankruptcy court to initiate
Bankruptcy proceedings

Petition forms must be completed accurately, sworn to
Under oath and signed by debtor


Voluntary bankruptcy

Debtor files the petition


Involuntary bankruptcy

1 or more creditors file petition to force debtor into


U.S. Trustee

Government official who performs certain administrative
Tasks that bankruptcy judge would otherwise have to


Order for relief

Court's grant of assistance to complainant

In bankruptcy proceedings, order relieves debtor of
Immediate obligation to pay debts listed in bankruptcy


What 2 circumstances will make the debtor's challenge fail when they challenge an involuntary petition?

1 debtor generally not paying debts as they come due

2 general receiver, custodian or assignee took possession
Of or was appointed to take charge of most/all debtors
property within 120 days before filing involuntary petition


Discharge (in bankruptcy proceedings)

Extinction of debtor's dischargeable debts, which relieves
Debtor of obligation to pay debts


Writ of attachment

Courts order issued prior to trial to collect debt

Directs sheriff/public officer to seize non exempt property
Of debtor

If creditor prevails at trial, seized property can be sold to
Satisfy judgement


Automatic stay

In bankruptcy proceedings, the suspension of virtually all
Litigation and other action of creditors against debtor

Stay is effective moment debtor files petition in court
(creditor can't contact debtor by phone as well)


Adequate protection doctrine

Protects secured creditors from losing their security as
Result of automatic stay

May petition bankruptcy court for relief of automatic stay


Estate in property (in bankruptcy proceedings)

All debtor's interests in property currently held wherever
Located, together with certain jointly owned property

Property transferred in transactions void able by the trustee,
Proceeds and profits from property of estate

And Certain property interests in which debtor becomes
Entitled to within 180 days after filing for bankruptcy


What is excluded from the estate?

Employee benefit plan contributions


Preference (in bankruptcy proceedings)

Property transfers or payments made by debtor that
Favor one creditor over others

Bankruptcy trustee is allowed to recover payments made
Both voluntarily and involuntarily to 1 creditor in preference
Over another


Preferred creditor (in context of bankruptcy)

Creditor who has received preferential transfer from debtor


What does a trustee do when he/she recovers property as a preference?

Trustee sells it and distributes proceeds to debtor's creditors


What happens when preferred creditor has sold property to an innocent 3rd party?

Trustee can't recover property from innocent party

The preferred creditor can be held accountable for value
Of the property


Limit on amount of property consumer-debtor can transfer before it is considered a preference?



Exceptions to discharge in bankruptcy

Court won't discharge claims based on debtor's willful or malicious conduct, fraud, larceny or embezzlement

Non dischargeable are divorce payments, taxes and usually
Student loans (unless undue hardship)


Reaffirmation agreement

Voluntary agreement between debtor and creditor, where
Debtor voluntarily agrees to pay debt dischargeable in

To be enforceable agreement must be made before
Debtor is granted a discharge



Out-of-court agreement btw/ debtor and creditors, where
Parties work out payment plan where debtor's debts can be


Debtor in possession (DIP)

In chapter 11 bankruptcy proceedings: debtor who's allowed
To continue in possession of estate in property (the business)

And continue business operations


Reorganization plan

When is the plan accepted by a class of creditors?

Plan to conserve and administer debtor's assets in hope
Of return to successful operation and solvency

When 2/3's the class of creditors vote to approve it


Cram down provision

Provision of bankruptcy code that allows court to confirm
Debtor's ch. 11 reorganization plan even though only 1 class
Of creditors has accepted it

Court must demonstrate plan doesn't discriminate against
Any creditors, thus is fair and equitable


3 conditions of debtor's repayment plan for individuals under chapter 13

1 future income is turned over to trustee

2 full payment through deferred cash payments of all claims
Entitled to priority (taxes)

3 identical treatment to all claims in particular class