1 secured transactions assignment 1 remedies of unsecured creditors under state law

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Secured TransactionsAssignment 1

Remedies of Unsecured Creditors under State Law

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Basic concepts: time and money

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Civil procedure (time line)

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Civil procedure

Complaint

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Civil procedure

Complaint

Service

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Civil procedure

Complaint

Service

Answer

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Civil procedure

Complaint

Service

Answer

Motion forsummaryjudgment . . .

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Civil procedure

Complaint

Service

Answer


or trial

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Civil procedure

Complaint

Service

Answer


or trial

Judgment

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Civil procedure

Complaint

Service

Answer


or trial

Judgment

Levy

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Civil procedure

Complaint

Service

Answer


or trial

Judgment

Levy

30 days (default) to one yearor more (with resistance)

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Civil procedure

Complaint

Service

Answer


or trial

Judgment

Levy

30 days (default) to one yearor more (with resistance)

10 day minimum

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Basic concepts: time and moneySummary procedure (small claims courts)

Complaint

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Complaint

Service by mail

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Complaint

Service by mail

Hearing

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Complaint

Service by mail Judgment

Hearing

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Complaint


60 days

Hearing

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Complaint


Levy

60 days 10 day minimum

Post judgment proceedings are generally the same as Civil Procedure

Hearing

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Some rough estimates of the cost of legal services

“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients

Contingency fees


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Partner in a Wall Street firm $600 - 1,000/hour


Contingency fees


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Associate in a Wall Street firm $250 - $600/hour


Contingency fees


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“Corporate” lawyers/litigator, small city $170 - $600/hour


Contingency fees


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Contingency fees


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Contingency fees

Legal services and pro bono Zero


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Contingency fees



For a bank to file complaint seeking foreclose on a $1 million business loan?

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Contingency fees



For a bank to file complaint seeking foreclose on a $1 million business loan? 12 hours at $450/hour = $5,400.

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Contingency fees



For a bank to file complaint seeking foreclose on a $1 million business loan? 12 hours at $450/hour = $5,400.

For your memorandum in Legal Research & Writing?

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Basic concepts: remediesMoney judgment: “Defendant owes plaintiff $5,000, for all of

which let execution issue.”

Issued at “end” of the case

Does not order Defendant to pay

Plaintiff enforces by other procedures

Execution: Sheriff seizes and sells the debtor’s property to satisfy the judgment (five steps)

1. Clerk of court issues the writ

2. Sheriff levies on the debtor’s property (no self help)

3. Sheriff sells the property

4. Sheriff applies proceeds to pay down the debt

5. Sheriff files a “return,” which reduces the judgment

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Basic concepts: remediesLevy: Seizure of property pursuant to execution

Sheriff must take physical possession (majority rule)

Sheriff follows creditors’ “instructions for levy”

Sheriff has liability for amercement / conversion

Sheriff requires creditor to indemnify sheriff

Exemptions (from execution): Property the sheriff cannot seize on a writ of execution

“Necessities” specified by state statute

Often limited by use or dollar amount

Usually claimed at levy

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Basic concepts: remediesPrejudgment attachment

Sheriff seizes property, as on execution

Creditor must prove “extraordinary circumstances”

Rare -- few creditors entitled

California: Available after hearing on a business debt

Self-help repossession: Creditor takes physical possession of debtor’s property

Unsecured creditors are not entitled to self-help

Conversion: “The wrongful exercise of dominion or control over the property of another.”

Self-help is conversion. Wrongful execution is conversion.

Remedy: Money judgment for market value. “You bought it.”

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Basic concepts: remedies

A B$100

$100

Setoff: If –

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A B$100

$100

Setoff: If –

either can “setoff” the debt it owes against the debt owing to it

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A B

Setoff: If –

No debt

either can “setoff” the debt it owes against the debt owing to it

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A B$100

$36

Setoff: If the amounts owing are not equal –

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a portion of the larger debt will survive


A B$100

$36

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a portion of the larger debt will survive


$64A B

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Basic concepts: remediesSetoff example: Debtor owes Bank for $30,000 loan

Debtor has $1,637 in an account at Bank

Debtor Bank$30,000

$1,637

Loan

Bank account

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On default, Bank can “set off” the bank account by changing the account balance to zero, then sending notice to debtor.

Debtor Bank$30,000

$1,637

Loan

Bank account

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On default, Bank can “set off” the bank account by changing the account balance to zero, then sending notice to debtor.

Debtor Bank$28,363

0

Loan

Bank account

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Basic concepts: remediesFraudulent Transfers:

§4(a)(1). A transfer . . . is fraudulent . . . if the debtor made the transfer . . . with actual intent to hinder, delay, or defraud any creditor . . . .

§8(a) A transfer is not avoidable under Section 4(a)(a) against a person who took in good faith and for a reasonably equivalent value . . . .

Example: George sells his property to Alice for $1, so that his creditors can’t take it.

Fraudulent transfer (4)(a), Alice has no defense (8)(a).

Alice has a defense if she paid reasonably equivalent value.

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Basic concepts: remedies§5(a). A transfer . . . is fraudulent . . . if the debtor made the

transfer . . . without receiving a reasonably equivalent value in exchange . . . and the debtor was insolvent . . . or became insolvent as a result of the transfer.

Example: George is desperate for cash. He sells assets worth $1 million to Alice for $500,000 (best price he can get now).

The transfer is fraudulent, reversible, regardless of intent.

Debtors can’t make bad deals. Even with strangers!

BP Deepwater Horizon spill. Difficulty selling assets.

§3(a). Value is given for a transfer . . . if, in exchange for the transfer . . . an antecedent debt is . . . satisfied . . . .

Example: Bernie Madoff uses his last billion to pay the management fees owing to his sons’ brokerage.

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Problem constraints

Legal strategy is subject to constraints – chess board

1. Law (delivered). What officials will actually do.

2. Procedural rules

3. Costs

4. Client goals

5. Attitudes and personalities of people involved

6. Media pressures

“Basic concepts” – how the chess pieces move

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Problem 1.1, page19

Benning lends $50,000 to Knopf, payable in quarterly installments, with interest at prime plus five points.

Loan is not currently in default

Conditions now are worse than at time of the loan, Knopf is behind on rent and utility payments

What do you advise?

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Problem 1.2, page 20

Complaint

Service

Default

$12,000Judgment

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What happens now? What do we need to know? How do we collect?

Complaint

Service

Default

$12,000Judgment

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What happens now? What do we need to know? How do we collect?

Should we send the sheriff to levy on the day care equipment now?

Complaint

Service

Default

$12,000Judgment

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Jeff plans to take the lawn furniture. Can he do that?

If Jeff can’t take the furniture, what can he do?

Jeff Lisa$1KLoan

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Kostandin owes Look $30,000

Look Kostandin$30,000

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So Look defrauds Kostandin of $30,000 in lobsters


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So Look defrauds Kostandin of $30,000 in lobsters


$30,000

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So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off

Look Kostandin0

0

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But the lobsters bring only $19,000.


$30,000

$19,000

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But the lobsters bring only $19,000.

Setoff

Look Kostandin0

$11,000

$19,000

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But the lobsters bring only $19,000. What now?

Look Kostandin0

$11,000

$19,000

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But the lobsters bring only $19,000. What now? Convicted!

Look Kostandin0

$11,000

$19,000

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But the lobsters bring only $19,000. What now? Convicted!

Court fines Look $15,000 and orders payback of $19,000.

Look Kostandin0

$30,000

$19,000 -19,000 -15,000 -15,000

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Problem 1.5, page 21Knopf owns the following property. What is exempt?

1. Toyota automobile worth $15,000

§815.18(3)(g), (d), exempt

2. Inherited house worth $35,000

§815.20, exempt

3. Day care equipment worth $10,000

§815.18(3)(b), may be exempt

4. Bank account, balance $2,265.92

§815.18(3)(k), partially exempt

Is there any hurry? Can we move fast enough?

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§815.18(3)(g), (d), exempt


§815.20, exempt






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§815.18(3)(g), (d), exempt


§815.20, exempt






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§815.18(3)(g), (d), exempt

2. Inherited house worth $275,000, subject to $225,000 mortgage

§815.20, exempt






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§815.18(3)(g), (d), exempt


§815.20, exempt if he lives in it






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§815.18(3)(g), (d), exempt








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§815.18(3)(g), (d), exempt




§815.18(3)(b), may be partially exempt ($15,000)




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§815.18(3)(g), (d), exempt








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§815.18(3)(g), (d), exempt








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§815.18(3)(g), (d), exempt








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§815.18(3)(g), (d), exempt








1 secured transactions assignment 1 remedies of unsecured creditors under state law

Documents

basic concepts

moneycivil procedure

small city

wall street firm

moneysome rough estimates

big clientscontingency

utility bills

cost of legal servicespartner