What is a prejudgment attachment? What is a writ of execution? How does a creditor use these...

• What is a prejudgment attachment? What is a prejudgment attachment? What is a writ of execution? How does What is a writ of execution? How does a creditor use these remedies?a creditor use these remedies?• What is garnishment? When might a What is garnishment? When might a

creditor undertake a garnishment creditor undertake a garnishment proceeding? proceeding?

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

• In a mortgage foreclosure, what legal In a mortgage foreclosure, what legal rights do mortgage holders have if the rights do mortgage holders have if the sale proceeds are insufficient to pay sale proceeds are insufficient to pay the underlying debt?the underlying debt?• What is a suretyship, and how does it What is a suretyship, and how does it

differ from a guaranty? differ from a guaranty?


• Can an unsecured creditor force a Can an unsecured creditor force a debtor to sell his or her home at a debtor to sell his or her home at a public auction? What is the homestead public auction? What is the homestead exemption, and how does it work?exemption, and how does it work?


• LiensLiens: : encumbrance (claim upon) on encumbrance (claim upon) on property to satisfy a debt or protect a property to satisfy a debt or protect a claim for the payment of debt.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.


• LiensLiens (cont’d). (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.


• GarnishmentGarnishment..• 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.


• GarnishmentGarnishment (cont’d). (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 25.1 Indiana Surgical Specialists v. Indiana Surgical Specialists v.

GriffinGriffin (2007). Should some contractors be exempt from garnishment orders?


• Creditors’ Composition Agreements.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.


• Mortgage Foreclosure.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.


• Mortgage Foreclosure (cont’d).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).


• SuretyshipSuretyship: : Promise by a third person to Promise by a third person to be be primarilyprimarily liable for the debtor’s liable for the debtor’s obligation to the creditor.obligation to the creditor.–Express contract between surety and

the creditor.–Creditor can demand payment from

surety at any time after debt is due.


• SuretyshipSuretyship: (cont’d). : (cont’d). –Creditor need not exhaust all legal

remedies against the debtor before holding the surety responsible.

• GuarantyGuaranty: third person making the : third person making the guaranty is guaranty is secondarilysecondarily liable. liable.–Guarantor is liable only after the

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• Guaranty: (cont’d). Guaranty: (cont’d). –Statute of Frauds requires guaranty to

be in writing, unless main purpose exception applies.–CASE 25.2 Overseas Private Overseas Private

Investment Corp. v. Kim Investment Corp. v. Kim (2010). Can a guarantor claim ignorance to excuse her from liability?


• Actions That ReleaseActions That Release the Surety and the Surety and Guarantor: Guarantor: same as those that will same as those that will discharge the guarantor.discharge the guarantor.• DefensesDefenses: : Surety can use any of the Surety can use any of the

principal debtor’s defenses EXCEPT principal debtor’s defenses EXCEPT incapacity, bankruptcy, or statute of incapacity, bankruptcy, or statute of limitations. limitations.


• DefensesDefenses: (cont’d).: (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.


• DefensesDefenses: (cont’d).: (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.


• Right of Subrogation.Right of Subrogation.• Right of Reimbursement.Right of Reimbursement.• Right of Contribution.Right of Contribution.–Sureties in equal amounts.–Sureties in equal amounts, one or

more co-sureties missing or insolvent.


• Exempted Real Property.Exempted Real Property.–Homestead: state laws permit entirely or

up to a certain dollar amount.• Exempted Personal Property.Exempted Personal Property.–Household furniture up to certain limit.–Clothing and personal possessions.–Vehicle for transportation.


• Exempted Personal Property Exempted Personal Property (cont’d).(cont’d).–Certain classified animals.–Equipment debtor uses in a trade or

business, up to certain dollar amount.


What is a prejudgment attachment? What is a writ of execution? How does a creditor use these...

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