2. CHAPTER 24 Laws of Debtor--Creditor Relations and Consumer Protection
THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER 24
Laws of Debtor--Creditor Relations and Consumer Protection
© 2006 Prentice Hall
Ch. 24-2

3. Debtor-Creditor Relations
Creditors’ rights to collect judgment
Liens: mechanics; artisans
Attachment
Writ of execution
Garnishment
Foreclosure

4. Debtors’ Rights Homestead Exemption Real Property
Established under state law
Varies in amount
Personal Property
Furniture
Tools
Vehicles

5. Bankruptcy
GOALS
To allow debtors a “fresh start” via ‘discharge’ in bankruptcy; to provide orderly process of payment to creditors
Chapter 7: Liquidation
Chapter 13: Wage Earner’s Plan
Chapter 11: Business Reorganization

6. Chapter 7 Liquidation Debtor’s assets placed into hands of Trustee
Trustee liquidates and pays creditors according to statutory priorities
Usually, creditors receive only a fraction of amount owed

7. Nondischargeable Debts
Chapter 7
Nondischargeable Debts
Paternity
Alimony
Maintenance
Child Support

8. (amounts subject to change)
Chapter 7
Exemptions
Categories
(amounts subject to change)
Residence
Vehicle
Household Goods
Jewelry
Tools
Life Insurance
Health Aids
Social Security Benefits
Miscellaneous

9. Chapter 13 Wage Earner Plan Debtor’s assets not liquidated
Debtor’s finances placed under court control
Creditors are paid in full, but over a longer period

10. Chapter 11 Reorganization Business continues to operate
Under court control
Payment schedules established with creditors
Voluntary or involuntary

11. Consumer Law Traditional View Modern View Freedom of contract
Caveat emptor
Laissez-faire
Modern View
Unconscionable
Fundamental breach
Consumer protection

12. Consumer-Business Relations
Federal Trade Commission
Prohibits “unfair methods of competition”
Used to protect consumers
Methods: Fines, injunction, corrective advertising, rescission, refunds, damages

13. Deceptive and Unfair Advertising
Wheeler-Lea Act of 1938
Scope: Price; quality and quantity; testimonials
Standard:
Misrepresentation likely to mislead
Consumers are acting reasonably
Misrepresentation is material

14. Consumer Legislation Franchising: Section 5 of FTC Act
Warranties: Magnuson-Moss Warranty Act
Express written warranties must meet guidelines
Full or limited warranties must be clear
Private right of action established

15. Telemarketing FTC Regulations in Force 1995 Prohibited Practices
Calling before 8 am or after 8 pm
False claims of affiliation
False claims regarding credit
Failing to disclose nature of call
Claiming ability to recover goods or money lost

16. Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994
Remedies: fines up to $10,000
Exemptions: insurers; franchisers; online services; those regulated by SEC; not-for-profit organizations
Enforcement via 50 state attorneys general or FTC

17. Telephone Company Protection Act of 1991
“Do Not Call” Registry
Junk faxes
Spam
State laws also enacted

18. Consumer Credit and Debt Collection Laws
Truth in Lending Act of 1969
Electronic Fund Transfer Act
Fair Credit Reporting Act of 1970
Fair Credit Billing Act of 1974
Equal Credit Opportunity Act
Fair Debt Collection Practices Act of 1977
Consumer Leasing Act of 1976

19. State Consumer Laws
Consumer protection division of 50 state attorneys general
Uniform Consumer Credit Code
Baby FTC laws
Arbitration of consumer disputes

20. Global Dimensions
Different countries have widely varied acceptance of advertising claims
EU has similar approach to that of FTC Section 5
Areas of concern – with different approaches
Comparative Advertising
Truthfulness in Content
Tobacco and Alcohol
Labeling
Warnings
Warranties
Credit Terms Disclosure