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 Hello Class,  Welcome to Debtor-Creditor Relations-Bankruptcy Law; my name is Michael Hanners and I will be your instructor for this term. I have.

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Presentation on theme: " Hello Class,  Welcome to Debtor-Creditor Relations-Bankruptcy Law; my name is Michael Hanners and I will be your instructor for this term. I have."— Presentation transcript:

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3  Hello Class,  Welcome to Debtor-Creditor Relations-Bankruptcy Law; my name is Michael Hanners and I will be your instructor for this term. I have worked with Kaplan University for over seven years; and have taught many different subjects. I am excited to share this journey with you; and I think we will all enjoy it and learn a great deal about the important subject of debtor-creditor relations and bankruptcy. Unfortunately, we have seen a spike in bankruptcies in the last few years and hopefully that will change soon. I live in the Orlando, Florida area and have two daughters. One is in college, and one is a senior in high school. I also have an Italian greyhound named Luigi. I am solely an educator and you will see me in the class daily and often multiple times per day.  My is and my cell is ; while I prefer s you may call me when an emergency arises or your feel  Again, welcome to this class. I will see everyone on Wednesday, February 29, at 8:00 PM EST for our first seminar.  Prof. Hanners

4  Each week we will have a video announcement. It is something relatively new to make a more complete connection between the professor and the students. I hope you enjoy our short little announcement each week.

5  Have you ever owed money to someone? Have you ever been contacted by a collection agency about a debt? Have you ever worked for a company that has been sued? Have you ever received a late notice indicating that your payment was not made on time? Has anyone ever owed you money? Have you ever tried to collect on a debt through the courts? In a nutshell, these are the issues that make up debtor-creditor law. Basically, debtor-creditor law comprises the rights you may legally exercise, either as a debtor (one who owes money) or as a creditor (one to whom money is owed).

6  In the interest of conducting a lively, engaging discussion, please keep the following in mind: Opposing viewpoints are key to any vibrant discussion, but remember to use internet etiquette and be respectful of your classmates’ views and opinions. Provide constructive feedback or ask clarifying questions if you do not understand a classmate’s comment. Most importantly, have fun interacting with the unit content, your classmates, and your instructor!  For Discussion Board requirements, refer to your course syllabus or to the Discussion Board Rubric, posted in Doc Sharing.

7 Guidelines for Evaluating Discussion (Total Points = 20) Timeliness & Frequency (25% of total points) Breadth and Depth of Responses (50% of total points) Clarity, Organization, Grammar, Mechanics (25% of total points) % Exceptional 5 points9-10 points5 points  Responses to each discussion question are across at least three days during the unit (Wednesday - Tuesday)  Responses are to several (3 – 5) students during the discussion(s)  Contributions – to each discussion question and to classmates - are thoughtful, include original evaluation, synthesis or analysis of the topic on the discussion board  Responses are relevant, meaningful, tactful, and original.  Responses advance the discussion on the discussion board  Contributions are clear and concise  Contributions are mechanically and grammatically correct 80-89% Exceeds 4 points8-9 points4 points  Minimum of two postings on each discussion question – one original post and one response to a class mate - are across two days during the unit  Contributions – to each discussion question and responses - are thoughtful, original, and have some synthesis, analysis and evaluation of topic  Responses are original and thoughtful, but limited in analysis of topic  Clear and understandable but may contain minor (insignificant) errors (e.g., capitalization, punctuation) 70-79% Meets 3 points7-8 points3 points  Posts (original and response to classmate)– on each discussion question - are not throughout the unit but posted on 1 day  Postings – to each discussion question - give adequate, explanation but limited analysis of topic  Responses add no meaning to discussion, repetitive of reading or other students  Brief and limited contribution  Understandable but with some difficulty due to frequent errors 60-69% Needs Improvement 2 points6-7 points2 points  Responses are not throughout the week but posted on the final day of the unit  Makes only their own post; no

8  Visit the Federal Trade Commission web site at cre27.pdf and read about the Fair Debt Collection Practices Act. cre27.pdf  As its name implies, the Act lays out guidelines for the proper collection of debts. Although it is not practical to read the entire Act, please skim the text.  In a few sentences, discuss three sections of the Act: first, discuss whether you agree or disagree with each of the sections, then support your answer with solid logic and reasoning.

9  Once collection agencies make contact, debtors should know how to respond. For this exercise, research and answer the following questions in a paragraph or two from the viewpoint of the debtor:  What is a collection agency?  What if you don't think you owe the debt?  How do you stop the collection agency from contacting you?  What are unlawful collection practices?  What steps can you take on your own to resolve the debt? To manage the collection process?  You may conduct your research in person, by phone, or via the Web. For Web searches, go to a search engine such as Google at Use whatever key words will be most helpful for the search. For instance, you may want to type "debt collection process."www.google.com

10  Short Paper:  Creditors and Debtors  Write a short paper (no more than 3 pages) describing the rights of creditors and the remedies of debtors. Make sure you note the similarities and differences. After the law changed in 2005, does the law favor creditors or debtors?  The viewpoint and purpose of this 3 page assignment should be clearly established and sustained. The assignment should follow the conventions of Standard American English (correct grammar, punctuation, etc). Your writing should be well ordered, logical, and unified, as well as original and insightful. Your work should display superior content, organization, style, and mechanics. Use the appropriate citation style for all citations. More details can be found in the GEL 1.1 Universal Writing Rubric. 

11  Unit 1 Quiz  Once you click the "Begin Quiz" button below, you will have 30 minutes to complete the quiz. Good luck!  Pre-Quiz Information  Please read the following before entering your Quiz*:  Reminders:  You will be able to enter this Quiz multiple times. There is no time limit for this type of Quiz.  If you lose your internet connection during your Quiz, log on again and reenter your Quiz.  Click the ‘Save Answers’ button often.  When you enter your Quiz the next time, your previous answers will appear.  Assessments with Multiple Pages:  Make sure you click the ‘Save Answers’ button before advancing to the next page, and complete all of the pages before submitting your Quiz for instructor review.  Do NOT use your browser’s ‘Back’ and ‘Forward’ buttons during the Quiz. Please use the provided links for navigation.  Submitting Your Quiz:  When you are finished with the Quiz, click on the ‘Submit for Grade’ button  Netscape Users:  Do NOT resize your screen/browser while you are in the Quiz. In other words, set the desired size of your window before entering the

12  The Fair Credit Reporting Act does not limit the injured party’s ability to seek punitive damages.  Creditors often hire collection agencies or attorneys to collect debts.  There are many restrictions on debt collectors and thus it is false to say that “Few restrictions or limitations are placed on the actions of collection agencies so long as the debts are verifiable.”

13  A third party sometimes has legitimate interest in knowing about a debtor. When this is the case, the communications are considered privileged.  The tort of invasion of privacy can be a cause of action when a creditor/debt collector behaves illegally and intrusively as defined by the law.

14  Under the Fair Debt Collection Practices Act, a debtor MAY bring an action against a collection agency.  A collection agency is likely to be found liable for unfair debt collection if it telephones neighbors of a debtor, places advertisements in publications, posts notices of debt, or attempts to embarrass a debtor.

15  The Fair Debt Collection Practices Act provides guidelines for locating a(n) debtor.  The Fair Credit Reporting Act requires creditors to notify an individual whenever denial of credit is based on that individual's credit report.  Collection agents found in violation of the Fair Debt Collection Practices Act may be liable in civil court for actual damages and additional damages up to $1,

16  Introduce Yourself to your Classmates  Read the Introduction  Review the Key Terms  Complete the Learning Journal Activity  Respond to the Discussion Board  Attend the Weekly Seminar  Take the Quiz  Complete and Submit the Assignment

17  Unit 1 Overview  Introduction to Debtors  Purpose  This unit introduces you to fundamentals of the debtor-creditor relationship from the perspective of the debtor. This week, we will learn about debtor's rights, including the Fair Debt Collection Practices Act.

18  The following Key Terms are provided to help you focus on and master the unit content. In addition to the class textbook, Black's Law Dictionary is a good resource for looking up unfamiliar terminology and concepts.  Debtor  Creditor  Judgment  Default judgment  Liquidated and unliquidated claims  Secured and unsecured creditors

19  umer/credit/cre18.shtm umer/credit/cre18.shtm  cpact.shtm cpact.shtm  ommentary.htm ommentary.htm

20  A collection agency may lawfully tell a debtor that failure to pay a debt will result in an adverse credit rating.  Creditors may not generally seek to prosecute debtors for unpaid debt through criminal courts.  Cognovit judgment is another term for judgment by confession.

21  Each state has its own statute of limitations regarding how long a judgment remains in effect.  The Federal Wage Garnishment Act sets a limit on the amount a debtor's salary can be garnished.  Attachment is a recognized means of collecting money on a judgment for a debt.

22  Pre-judgment proceedings prevent a debtor from selling off property before seizure.  A(n) Uniform Fraudulent Conveyance Act is usually when a debtor transfers property to a third party to avoid a legitimate claim of a creditor.

23  A(n) open account, also known as a running account, is when a creditor has continuous business transactions with the debtor.

24  Collection Demand Letter  For your Short Paper #1, you will draft a professional collection demand letter. Devise any characters or facts necessary to compose a thorough letter on fictional letterhead. For guidance, conduct a Web search using the search terms "collection demand letter sample." Use other key words if you are not finding the results you would like

25  This unit introduces students to fundamentals of the debtor-creditor relationship from the perspective of the debtor. We will learn about debtor's rights, including the Fair Debt Collection Practices Act.

26  Other Means of Collection"  Click here to download and read "Other Means of Collection."  Lawful Debt Collection  In preparation for the discussion board visit the New York Attorney General’s office at ebt_collectors.html.  This site describes lawful means for collectors to use to collect monies owed by a debtor.  ID: PA R

27  Today, almost everything we do is based on credit. We finance things through credit cards, bank loans, home mortgages, car loans, and more. Good credit is used not only in financing, but also as a basis for determining a person's character. Schools and colleges, country clubs, employers, and even the government consider a person's credit rating as part of his or her resume. As a result, a collection agency can use the threat of a bad credit rating as a powerful tool to legally collect debts. Simply by threatening to enter damaging information into a credit agency computer file, the collection agent often has more bargaining power than an attorney through the courts.

28  Default Judgment When credit rating threats prove fruitless, creditors can proceed to the court system to collect debts. The quickest method of resolving the debt is through a default judgment. This is a court decision in which the creditor wins by default because the debtor does not file a response to the complaint. Most default judgments are handed down because the debtor failed to appear at the hearing. Often, a creditor will seek a default judgment for tax purposes in order to write off the loss. In most cases, though, the creditor is seeking partial or full payment of the debt in the quickest and most efficient way possible.

29  When a person is properly served the defendant normally has 20 days to file an answer to the complaint. The defendant is apprized of this in the summons which is served with the complaint. The summons is an order from the court that makes failure to answer the complaint an act which can result in a money judgment against the defendant.

30  Once a defendant has failed to file his, her or its answer to the complaint within the required time, it is the Clerk of the Court that enters the default against the defendant.  Do you then possess a Default Final Judgment?  No you do not, so how do you get one?

31  Yes, that is right, you must file a motion with the court in that case seeking a default final judgment; you must properly serve the defendant notice of such hearing and conduct the hearing upon said day and time.  Should the defendant fail to show again, the court has the power to award a default final judgment in an amount not to exceed the amount stated in the Wherefore clause of the complaint

32  In a complaint the “ Wherefore clause,” essentially comes after the plaintiff has stated his or her cause of action and then states what relief he or she wants from the court.  For example:  WHEREFORE, the plaintiff demands one million dollars in compensatory damages and ten million dollars in punitive damages.

33  Cognovit Judgment A second way to obtain a judgment against a debtor is through a judgment by confession, or a cognovit judgment. The parties in a debtor-creditor relationship agree on a judgment by confession when the initial contract is signed. The debtor agrees that should he or she default in the future, the creditor may obtain a judgment against him or her without a hearing and without notice. In this process, the creditor chooses an attorney who appears in court to "confess the judgment" against the debtor. This may be accomplished without ever serving process (legal papers) on the debtor. Many jurisdictions have eliminated the procedure, however, so it is important to research the statutes in your state.

34  Contesting the Judgment A debtor may get the court to strike, or make void, either the default or cognovit judgment by proving that the judgment was improper. Let's return to our example from Lesson 1.  Assume that Carrie Billings in the stationery store threw away the collection letter she got from the supply company. Sales have been down at the store, and she decided not to pay the bill. The greeting card company discovers that its efforts to collect the debt from Billings have failed. It could not get payment through its own bookkeeping systems or through the use of a collection agent. Billings may even be considering bankruptcy. The greeting card company decides that its only alternative is to sue her for nonpayment of $1,000 worth of greeting cards.  The fact that a creditor has sued does not necessarily mean that the creditor deserves to collect the amount in dispute. The creditor must first prove the amount of the debt. There are many reasons why a debt could be disputed. For example, a defective product may have been delivered. Billings could have received greeting cards on which the ink had smeared.

35  Final Judgments: In the court's final judgment, the debtor will be held liable for a specific amount. That amount is subject to an interest rate determined by state statute. Interest will accrue until the judgment is paid in full or no longer enforceable. Final judgments remain enforceable for many years after they are entered, though each state has its own statute establishing the exact duration. In some states, it may be as long as 20 years.

36  With a final judgment decree in hand, how, then, can a creditor enforce the court's decision? In the old days, there were "debtors' prisons" for people who did not pay their debts. They have since been abolished. Today, one of the most common ways to enforce a judgment is through garnishment. Garnishment is a court order that forces someone who holds the debtor's property to pay proceeds directly to the creditor.

37  Example: Earl Jones, a debtor, works for the Zink Company and is paid a salary. Therefore, Jones's employer is holding his property, that is, his wages. Under a garnishment order, his employer has been directed by the court to take a certain amount of his disposable income to pay off his debts.  Under federal law, a creditor can only garnish income after required state and federal deductions have been taken. Examples of such deductions are federal and state withholding taxes and Social Security taxes. The remaining balance is considered disposable income. Additional deductions for items such as health insurance or employee advances are not considered when determining the debtor's disposable income.

38  The Federal Wage Garnishment Act limits the amount of garnishment to 25 percent of the debtor's disposable income or the amount by which disposable earnings exceed 30 times the minimum hourly wage, whichever is smaller. State laws differ as to what may be garnished and in what amount. For example, many states limit the garnishment on the salary of a head of household. Some states prohibit garnishment in any form. Be sure to know the laws in your state.

39  Another means of collecting money on a judgment for a debt is through a court-ordered attachment. Either through a writ of attachment or another court order, the debtor's property is seized and sold to pay off the debts. Any remaining monies are returned to the debtor.  All states provide for attachment in their statutes, though regulations vary dramatically. Federal rules require federal courts to follow state rules. Check the statutes for the state where you intend to work.

40  Before there can be a post-judgment attachment, the creditor judgment holder will normally be required to file an affidavit with the court. In the affidavit, the creditor swears to the court that his or her judgment against the debtor has not been fully satisfied. The creditor must also identify specific property to attach. The creditor must also file a bond with the court to ensure payment of court costs and the loss of use or actual loss of the debtor's property in the case of an improper attachment.

41  Writ of Attachment:  After reviewing the attachment pleadings, the court will issue a writ of attachment. This writ will direct the appropriate law enforcement agency to seize and sell the debtor's property in order to satisfy the judgment. The attachment lien places the creditor in a favorable bargaining position. The threat of a loss of property, even for a limited time, may persuade a debtor to pay a claim, even if it is of questionable validity.

42  There are disadvantages to obtaining a writ of attachment, however. One major concern for creditors is the personal liability for wrongful attachment. The attachment deprives the debtor of his or her property. If the debt collection ends in favor of the debtor, he or she can recover any actual damages as a result of the wrongful attachment. Additionally, punitive damages may be awarded if the attachment is proven to be the result of malicious intent on the part of the creditor. If the creditor has the court direct the sheriff to seize more property than is necessary, the sheriff's liability will also be borne by the creditor.

43  The Lien  As a consequence of collection litigation, two different types of liens may arise, a judgment lien and an execution lien (writ of execution).

44  Judgment Lien In several states, a judgment lien is automatically granted with the judgment. In other states, a lien will be placed on the property of the debtor only after the creditor records the judgment with the county clerk in the county where the debtor owns real and/or personal property. If a creditor has obtained a judgment against a debtor in a state other than the state where the debtor owns property, the creditor will be required to have this foreign judgment recognized in the state where the property is owned. This is sometimes called domesticating a foreign judgment. Once recognized, the judgment will become a lien -- and therefore enforceable -- in both states. Only a few states have adopted the recommendation of the Uniform Enforcement of Foreign Judgments Act, which provides a quick and easy method for proving a judgment awarded in another state. Consult your state statutes.

45  Obtaining a judgment, or even a judgment lien, does not end the process of collecting a debt. Obtaining a lien only gives the creditor the right to have the property seized. In some states, a foreclosure proceeding must be completed in order to sell the property to satisfy the debt. Other states provide for a sale under a writ of execution.

46  Generally, the clerk of the court issues a writ of execution from the same court that rendered the original judgment. The writ of execution directs the sheriff, or some other government agent, to seize the property described in the writ. After such seizure and appraisal of the property, due notice is given to the public that the property will be sold at public sale. The property will then be auctioned.  Each state sets a time frame within which the creditor must attempt to enforce the judgment lien. If the lien expires, the creditor may lose the ability to collect on the debt.

47  Another way to collect on a judgment is called the creditor's bill. It is designed for a creditor who is unable to completely satisfy a judgment. The creditor requests that the court compel the debtor to turn over his or her property so that it may be sold to satisfy the creditor's judgment. In some ways, this action may be used as a substitute for bankruptcy. Creditors may file a creditor's bill not only for themselves, but also on behalf of other judgment creditors who may be interested in filing the same action.

48  Creditors' Remedies Before Judgment  While creditors frequently use garnishment and attachment to recover a debt after a court judgment, some states also allow creditors to use similar measures during a suit. Such measures are called Creditors' Remedies before Judgment, and they are used to prevent debtors from fraudulently liquidating or selling off all of their assets in order to avoid paying the debts.

49  State and Federal Regulations There are many state and federal regulations that determine what can be garnished and attached prior to a judgment being handed down. However, in all cases, the U.S. Supreme Court has ruled that debtors' wages cannot be garnished or their property attached without them first being served with notice of the proceedings and having the opportunity to be heard in court. Which we all recognize as procedural due process.

50  Before-judgment proceedings are used to prevent a debtor from engaging in a fraudulent conveyance, that is, selling off property to avoid having it seized to pay off a debt. In a fraudulent transfer, the debtor transfers the ownership of property to a third party with the intent of continuing to benefit from the property.  Attempt to defraud a creditor will most likely be ineffective, since the creditor can bring an action to set aside any conveyance and ultimately sell the property to satisfy the debt.

51  How do the courts determine whether a transfer is a fraudulent conveyance? Some factors include, but are not limited to the following:  1. Did the transferor/debtor who conveyed property and/or ownership to another retain possession and/or full control and use of the conveyed property?  2. Was the conveyance made by the debtor during the course of a lawsuit over monetary damages? If so, the court will likely assume the conveyance was fraudulent and intended to avoid attachment by the creditor.  3. Did the debtor transfer money or property to another family member without consideration? If so, was the transfer made during the time that the creditor was demanding payment on a debt?

52  Many states have adopted the Uniform Fraudulent Conveyance Act (UFCA). The UFCA has attempted to define specific actions that will be uniformly considered fraudulent conveyances. If your state has adopted this Act, you should locate the contents and become familiar with it.

53  An open account is sometimes referred to as a running account. Often, merchants have continuous business transactions with customers. The creditor will keep the account open, crediting the debtor for any payments made and debiting the amount of new purchases. Both the creditor and the debtor consider their business dealings as one continuous transaction rather than many small transactions.

54  Example: Terry Mann owns a local restaurant. He has been doing business with Patricia Virgil for many years. Whenever Mann needs fresh produce for his restaurant, he runs down to Virgil's shop and picks up what he needs. Mann's "open account" with Virgil has no final balance since they both anticipate future transactions between them. As future purchases and random payments are made, the balance will go up and down.  Since an open account is considered one transaction and not many separate transactions, the debtor owes the creditor only one liability. This will be the amount due on the termination of the open account arrangement.

55  In order to end their open account agreement, Virgil can calculate Mann's final balance due and demand payment. If Mann refuses to pay, she would only have to file one lawsuit for the balance due upon termination of the open account. She would not have to file a separate lawsuit for each unpaid purchase Mann made during their long business relationship.

56  An account stated occurs when a creditor submits a bill to the debtor and the debtor expressly and implicitly accepts that the amount indicated is accurate. One of the advantages in suing a debtor under the theory of account stated is that the creditor is not required to prove the validity and accuracy of each separate transaction in the final amount due. The creditor must simply allege and prove that he or she submitted the bill to the debtor and the debtor agreed to the bill and the amount. In most situations, a written account stated does not even have to list all of the items involved in calculating the balance due amount. A simple balance due is sufficient.

57  In contrast, the creditor in an open account action will have to establish that each transaction making up the open account is Accurate and valid. Additionally, the creditor will have to prove the validity and accuracy of his or her calculations in determining the amount due.  In an account stated action, the debtor can agree to the bill either orally or in writing. No signature is required. A debtor may also agree to the bill by failing to contest the charges within a reasonable period of time. What constitutes a reasonable time is usually an issue for the jury to decide. Such factors as the relationship between debtor and creditor, the geographical distance between them, and the intelligence of both parties must all be considered.


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