Creditor Rights and Remedies

Creditors' Rights

  • Creditors can protect their rights through various methods:
    • Mortgages: A consensual lien where the homeowner (mortgagor) gives the lender a security interest in the property. Failure to pay leads to acceleration and foreclosure.
    • Liens:
      • Mechanics Lien: A non-consensual lien by someone who worked on the real property.
      • Artisan Lien: Concerns personal property (e.g., work done on a car).
      • Judicial Lien: Obtained through a court judgment and enforced through garnishment, attachment, execution, etc. This process is often time-consuming.

*For debtors, it's always best to check the creditor's options and potentially explain hardships to negotiate terms. Bankruptcy is always an option.

  • Recording the Deed of Trust:

    • In real property, recording the deed of trust indicates the lender is the beneficiary.
    • The promissory note (promise to pay) can be sold, and the holder becomes the beneficiary or assignee of the deed of trust, who can then proceed with foreclosure.

  • In Washington State, a nonjudicial foreclosure may occur under the Deed of Trust Act, benefiting creditors. Debtors typically do not have to pay a deficiency judgment.

Secured Transactions (UCC Article 9)

  • Governs goods, both tangible and intangible.

  • Key steps:

    • Agreement.

    • Creation and Attachment: Five stages to create a secured transaction.

    • Perfection: Notifying the world of the security interest.

      • For real property: file the deed of trust where the property is located.
      • For personal property: file a financing statement (UCC-1) with the appropriate state agency (e.g., Department of Licensing in Washington; Secretary of State in other states).
      • First to perfect generally gets paid first.

    • Purchase Money Security Interest (PMSI):

      • If someone provides funds to purchase something and perfects the security interest within 20 days, they generally get priority over prior security interests.

Bankruptcy

  • Bankruptcy laws generally treat creditors equally, but secured creditors get their collateral.
  • Principal Goal: To provide a clean slate for the debtor, allowing the discharge of debts like medical bills and credit card debt.
  • Non-Dischargeable Debts: Student loans, child support, etc.
  • Exempt Property: Debtors can keep certain exempt property.
    • The US Bankruptcy Code provides a list of exemptions.
    • States also have their own lists, often more favorable to debtors.

Fair Debt Collection Practices Act

  • Protects debtors from harassment by debt collectors.

Types of Bankruptcy

  • Chapter 7 (Liquidation): For individuals and businesses.

  • Chapter 11: Typically for businesses, but can be used by individuals.

  • Chapter 12: For Farmers and Fishermen (mentioned in the textbook).

  • Chapter 13 (Wage Earner Plan): For individuals with too much income to qualify for Chapter 7; involves a repayment plan.

    • Reaffirmation of Debt: To keep assets like a mortgaged home or car, a separate reaffirmation agreement is required.
    • Washington State exemptions may help retain student loan debt and interest.

  • Credit Counseling: Individuals filing Chapter 7 must undergo credit counseling, intended to potentially prevent complete bankruptcy.

Exam Notes

  • Review the mortgage note, focusing on acceleration clauses.
  • Understand foreclosure processes (real vs. personal property).
  • Automatic Stay: Research this topic in the video and textbook.