Surety and Consumer Credit

Question 1

Guaranty and Suretyship

Answer 1

A surety promises to answer for the debts of another
i.e. co-signer

• primary liability goes to co-signor
• exception: “collection guaranteed” - secondary liability
• must be in writing

Question 2

Creditor’s Rights

Answer 2

• does not need to proceed against collateral first
• can sue surety first before going after debtor

Question 3

Surety’s Rights

Answer 3

Prior to Payment
- Exoneration: found not liable (can force the principal debtor or someone else to pay creditor) – need a real defense
- Defenses BREASTS
Bankrupt Surety
Raised amount or altered terms
Execution Fraud
Age - minor or incompetent
Signature Unauthorized
Threat of Violence
Substance of the Contract was illegal

After Payment
- Subrogation: Step into the shoes of creditor against the principal debtor
Best Defense
- Contribution: after paying, seek reimbursement (only if 2 or more sureties)
– Creditor can release one of the sureties of the debt, the primary only owes his portion (because his right to contribution has been impaired)

Question 4

Other Debtor/Creditor Rights

Answer 4

Mechanic’s Lien - someone who improves real estate has the right to be paid and can place a lien on the property and sell property WITH notice (common law)

Artisan’s Lien - someone who improves personal property has the right to be paid, they could place a lien on property and sell the item WITH notice (UCC)

Collection Process:
- Writ of Attachment: pre-judgment remedy where creditor asks police to seize debtor’s personal property (only flight risk cases)
- Writ of Execution: post-judgement remedy, sheriff to sell debtor’s property to satisfy judgment
- Garnishment: wages and bank account assets would be pre-post- judgment
– cannot be garnished: veterans benefits, SS, disability

FTC Enforced::
Equal Credit Oppty Act: Lenders cannot discriminate on race, sex, age, marital status

Truth in Lending Act: lenders are required to disclose all costs of credit including finance charges

Fair Credit Reporting Act: Credit agencies can report accurate credit info about consumers

Credit Card Fraud Act: Max liability is $50 if stolen

Fair Debt Collection Practices Act: Restrictions on debt collector contact

Question 5

Bankruptcy Alternatives

Answer 5

Composition Agreement: Binding, debtor released from remaining debt.
- debtor offers less then full amount but in full satisfaction of remaining debt

Assignment Agreement: not-binding, debtor not released from debts
– gives the asset back to creditor
– after sale, debtor can still be sued for deficiency