discussion

Question 11, page 633, Chapter 36

Q: Rey owed Imperial Bank $400. When he could not pay, the bank took a judgment against Rey and filed a garnishment against his wages. Rey’s employer agreed to run all of Rey’s salary over to the bank until the debt was paid in full. May the employer do so?

Goldman | Sigismond
9e
1
CHAPTER
36
Protecting the Creditor
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Learning Objectives
➜ List the rights available to a creditor
who has not been paid by a debtor,
and explain the importance of a
secured debt versus an unsecured
debt.
➜ Describe the difference between a
suretyship and a guaranty.
➜ Explain the various types of security
interests that are created by law, such
as a mechanic’s lien.
Copyright ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
36.2
The Right to Be Paid
➜ A creditor has an absolute right to be
paid unless the debtor has certain
defenses against the creditor, such as
fraud or misrepresentation.
➜ How and in what manner a creditor
may enforce this right depend on
whether the credit transaction is
unsecured or secured.
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36.3
Unsecured Debts
➜ A creditor holding an unsecured debt
is limited in the methods that can be
used to collect the debt.
➜ Collection.
➜ Collection agency.
➜ Lawsuit and judgment.
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36.4
Writ of Execution
➜ Writ: formal court command
requiring the performance of an act.
➜ Execution: the seizure of a debtor’s
property to satisfy a judgment.
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36.5
Garnishment, Wage Assignment,
and Attachment
➜ Garnishment: seizure of a portion of
a debtor’s wages to satisfy a
judgment.
➜ Wage assignment: debtor’s voluntary
transfer of wages to a debtor to repay
a debt.
➜ Attachment: seizure of a debtor’s
property prior to a judgment.
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36.6
Secured Debts
➜ A secured debt, created by an
agreement between the debtor and
the creditor, is one in which the
creditor has a claim against specific
property of the debtor.
➜ The creditor’s claim in the property is
called a security interest.
➜ A secured debt, or secured
transaction as it is often called, is
created by a security agreement.
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36.7
Security Agreement
➜ Security agreement: agreement
giving a creditor a security interest in
a debtor’s property.
➜ The property pledged by the debtor
as security for the debt is the
collateral.
➜ Collateral may be either tangible or
intangible property.
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36.8
Financing Statement
➜ Financing statement: public notice of
the existence of a security interest in
certain property of the debtor.
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36.9
Termination Statement
➜ Termination statement: public notice
indicating that a security interest is
no longer claimed in certain property.
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36.10
Other Methods of Protecting
Creditors’ Rights
1. Suretyship.
2. Guaranty.
3. Remedies for debtor’s default.
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36.11
Suretyship
➜ Suretyship: promise by a third party
to be primarily responsible for
another person’s debt.
➜ Surety: third party who agrees to be
primarily responsible for another
person’s debt if the debtor defaults.
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36.12
Guaranty
➜ Guaranty: promise by a third party to
be secondarily liable for the debt of
another person.
➜ Guarantor: third party who agrees to
repay another person’s debt if the
debtor defaults.
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36.13
Remedies for Debtor’s Default
➜ A secured creditor has two options if
a debtor defaults. One option is to
sell the collateral and use the
proceeds to pay the debt.
➜ If the debtor has possession of the
collateral, the creditor may take steps
to gain possession of the property.
This process is known as
repossession.
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36.14
Security Interests Created by Law
➜ Lien: security interest created by law.
➜ Lienholder: person holding a lien.
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36.15
Mechanic’s Lien
➜ Mechanic’s lien: lien given to those
who supply labor, materials, or
services in construction projects.
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36.16
Tax Lien
➜ Tax lien: lien given to a government
agency to ensure the payment of
property taxes.
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36.17
Judgment Lien
➜ Judgment lien: lien granted to a
creditor who has sued a debtor and
obtained a judgment against the
debtor.
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36.18
Artisan’s Lien
➜ Artisan’s lien: lien a service provider
has against personal property for
unpaid bills.
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36.19
Hotelkeeper’s Lien
➜ Hotelkeeper’s lien: lien a hotel owner
has against property of a guest for
unpaid bills.
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36.20