1. Chapter 25 Other Creditors’ Remedies and Suretyship

2. Learning Objectives
What is a prejudgment attachment? What is a writ of execution? How does a creditor use these remedies?
What is garnishment? When might a creditor undertake a garnishment proceeding? 
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3. Learning Objectives
In a mortgage foreclosure, what legal rights do mortgage holders have if the sale proceeds are insufficient to pay the underlying debt?
What is a suretyship, and how does it differ from a guaranty? 
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4. Learning Objectives
Can an unsecured creditor force a debtor to sell his or her home at a public auction? What is the homestead exemption, and how does it work?
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5. Laws Assisting Creditors
Liens: encumbrance (claim upon) on property to satisfy a debt or protect a claim for the payment of debt.
Mechanic’s Liens: security for labor, materials, or service on real estate.
Artisan’s Liens: labor and materials on personal property.
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6. Laws Assisting Creditors
Liens (cont’d).
Judicial Liens: arises out of a court decision.
Writ of Attachment: court orders sheriff to seize non-exempt property.
Writ of Execution: court order to seize and sell debtor’s non-exempt real and personal property to satisfy debt.
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7. Laws Assisting Creditors
Garnishment.
Permits a creditor to collect a debt by seizing property of the debtor held by a third party (garnishee).
Typically the garnishee is the debtor’s employer.
Garnishment Proceedings governed by state law. 
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8. Laws Assisting Creditors
Garnishment (cont’d).
Laws Limiting the Amount of Wages Subject to Garnishment.
Both federal and state laws limit the amount that can be taken out of a debtor’s take home pay.
CASE Indiana Surgical Specialists v. Griffin (2007). Should some contractors be exempt from garnishment orders?
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9. Laws Assisting Creditors
Creditors’ Composition Agreements.
Creditors take less than owed on a liquidated debt.
Binding on those who agree because consideration given by each depending on one another.
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10. Laws Assisting Creditors
Mortgage Foreclosure.
Mortgage is a written instrument giving a creditor an interest in (lien on) the debtor’s real property as security for the payment of a debt.
Financial institutions grant mortgage loans for the purchase of property—usually a dwelling and the land.
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11. Laws Assisting Creditors
Mortgage Foreclosure (cont’d).
The mortgagee (the creditor-lender) can seek to recover the difference from other property owned by the mortgagor (the debtor) by obtaining a deficiency judgment (difference between the mortgaged debt and the amount received from the foreclosure proceeds).
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12. Suretyship and Guaranty
Suretyship: Promise by a third person to be primarily liable for the debtor’s obligation to the creditor.
Express contract between surety and the creditor.
Creditor can demand payment from surety at any time after debt is due. 
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13. Suretyship and Guaranty
Suretyship: (cont’d).
Creditor need not exhaust all legal remedies against the debtor before holding the surety responsible.
Guaranty: third person making the guaranty is secondarily liable.
Guarantor is liable only after the principal debtor defaults. 
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14. Ex. 25-1 Suretyship and Guaranty Parties
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15. Suretyship and Guaranty
Guaranty: (cont’d).
Statute of Frauds requires guaranty to be in writing, unless main purpose exception applies.
CASE Overseas Private Investment Corp. v. Kim (2010). Can a guarantor claim ignorance to excuse her from liability?
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16. Suretyship and Guaranty
Actions That Release the Surety and Guarantor: same as those that will discharge the guarantor.
Defenses: Surety can use any of the principal debtor’s defenses EXCEPT incapacity, bankruptcy, or statute of limitations. 
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17. Suretyship and Guaranty
Defenses: (cont’d).
Surety can use his own defenses, EXCEPT fraud between debtor and surety that is unknown by creditor.
Material contract modification between debtor and creditor will release a gratuitous surety and a compensated surety to the extent he suffers a loss. 
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18. Suretyship and Guaranty
Defenses: (cont’d).
Surrender or impairment of the Debtor’s collateral releases surety to the extent he is damaged.
Release of a co-surety releases surety to the extent he is damaged.
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19. Rights of Surety & Guarantor
Right of Subrogation.
Right of Reimbursement.
Right of Contribution.
Sureties in equal amounts.
Sureties in equal amounts, one or more co-sureties missing or insolvent.
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20. Laws Assisting Debtors
Exempted Real Property.
Homestead: state laws permit entirely or up to a certain dollar amount.
Exempted Personal Property.
Household furniture up to certain limit.
Clothing and personal possessions.
Vehicle for transportation. 
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21. Laws Assisting Debtors
Exempted Personal Property (cont’d).
Certain classified animals.
Equipment debtor uses in a trade or business, up to certain dollar amount.
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