May 13, 2023

Paul ?Barton owned a small property-management company, doing business as ?Brighton Homes. In October, Barton went on a spending spree. First, he ?bought a Bose surround-so

Steps For both Discussions:

Please remember as we discussed in the zoom session, you are debating the DEBATE THIS prompt. You are going to write an introductory paragraph stating your position with 3 supporting paragraphs and then a conclusion. Feel free to incorporate the fact pattern I gave you as an example to help prove your point. But you do not necessarily have to answer the questions posed. I want to see reasoned analysis and critical thinking. There is no right or wrong answer. Feel free to use the internet for all supporting resources, cases, journal, articles, etc… Make sure that you cite your sources.

1. Debate This: Security Interests

Paul Barton owned a small property-management company, doing business as Brighton Homes. In October, Barton went on a spending spree. First, he bought a Bose surround-sound system for his home from KDM Electronics. The next day, he purchased a Wilderness Systems kayak from Outdoor Outfitters, and the day after that he bought a new Toyota 4-Runner financed through Bridgeport Auto. Two weeks later, Barton purchased six new iMac computers for his office, also from KDM Electronics. Barton bought all of these items under installment sales contracts. Six months later, Barton’s property-management business was failing. He could not make the payments due on any of these purchases and thus defaulted on the loans. Using the information presented in the chapter, answer the following questions.

For which of Barton’s purchases (the surround-sound system, the kayak, the 4-Runner, and the six iMacs) would the creditor need to file a financing statement to perfect its security interest?
Suppose that Barton’s contract for the office computers mentioned only the name, Brighton Homes. What would be the consequences if KDM Electronics filed a financing statement that listed only Brighton Homes as the debtor’s name?
Which of these purchases would qualify as a PMSI in consumer goods?
Suppose that after KDM Electronics repossesses the surround-sound system, it decides to keep the system rather than sell it. Can KDM do this under Article 9? Why or why not?

Debate This:
A financing statement that does not have the debtor’s exact name should still be effective because creditors should always be protected when debtors default

2. Debate This: Personal Bankruptcy

Three months ago, Janet Hart’s husband of twenty years died of cancer. Although he had medical insurance, he left Janet with outstanding medical bills of more than $50,000. Janet has worked at the local library for the past ten years, earning $1,500 per month. Since her husband’s death, Janet also has received $1,500 in Social Security benefits and $1,100 in life insurance proceeds every month, giving her a monthly income of $4,100. After she pays the mortgage payment of $1,500 and the amounts due on other debts each month, Janet barely has enough left over to buy groceries for her family (she has two teenage daughters at home). She decides to file for Chapter 7 bankruptcy, hoping for a fresh start. Using the information provided in the chapter, answer the following questions.

Under the Bankruptcy Code after the reform act, what must Janet do before filing a petition for relief under Chapter 7?
How much time does Janet have after filing the bankruptcy petition to submit the required sched-ules? What happens if Janet does not meet the deadline?
Assume that Janet files a petition under Chapter 7. Further assume that the median family income in the state in which Janet lives is $49,300. What steps would a court take to determine whether Janet’s petition is presumed to be substantial abuse under the means test?
Suppose the court determines that no presumption of substantial abuse applies in Janet’s case. Nevertheless, the court finds that Janet does have the ability to pay at least a portion of the medical bills out of her disposable income. What would the court likely order in that situation?

Debate This:
Rather than being allowed to file Chapter 7 bankruptcy petitions, individuals and couples should always be forced to make an effort to pay off their debts through Chapter 13.

BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e

Roger LeRoy Miller

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Security Interests and Creditors’ Rights

Chapter 25

Chapter Outline

25-1 Creating and Perfecting a Security Interest

25-2 Scope of a Security Interest

25-3 Priorities, Rights, and Duties

25-4 Default

25-5 Other Laws Assisting Creditors

Learning Objectives

What is required to create a security interest?

How can a security interest extend to a debtor’s newly acquired inventory?

If two parties have perfected security interests in the debtor’s collateral, which party has priority on default?

When is a creditor required to sell or otherwise dispose of the repossessed collateral?

What is a suretyship, and how does it differ from a guaranty?

25-1 Creating and Perfecting a Security Interest (slide 1 of 3)

Secured Transaction: Any transaction in which the payment of a debt is guaranteed, or secured, by personal property owned by the debtor or in which the debtor has a legal interest.

Default: Failure to pay the debt as promised.

25-1a Definitions

A secured party is any creditor who has a security interest in the debtor’s collateral.

A debtor is a person who owes payment or other performance of a secured obligation.

25-1 Creating and Perfecting a Security Interest (slide 2 of 3)

25-1a Definitions

A security interest is the interest in the collateral that secures payment or performance of an obligation.

A security agreement is an agreement that creates or provides for a security interest.

Collateral is the subject of the security interest.

A financing statement (UCC-1 form) is the instrument normally filed to give public notice to third parties of the secured party’s security interest.

25-1b Requirements to Create a Security Interest (slide 1 of 2)

Unless the creditor has possession of the collateral, there must be a written or authenticated security agreement that clearly describes the collateral subject to the security interest and is signed or authenticated by the debtor.

The secured party must give something of value to the debtor.

The debtor must have “rights” in the collateral.

25-1b Requirements to Create a Security Interest (slide 2 of 2)

Written or Authenticated Security Agreement

Authenticate: To sign, execute, or adopt any symbol on an electronic record that verifies the intent to adopt or accept the record.

Secured Party Must Give Value

Debtor Must Have Rights in the Collateral

Exhibit 25-1 The Secured Transactions Relationship

Case 25.1

Royal Jewelers Inc. v. Light (2015)

Under the circumstances, is it ethical for GRB to enforce its security interest in the ring to recover the unpaid amount of the price? Discuss.

25-1b Perfecting a Security Interest (slide 1 of 2)

Perfection: The legal process by which secured parties protect themselves against the claims of third parties who may wish to have their debts satisfied out of the same collateral.

Perfection by Filing

The Debtor’s Name

Description of the Collateral

Where to File

Consequences of an Improper Filing

25-1b Perfecting a Security Interest (slide 2 of 2)

Perfection without Filing

Perfection by Possession

Perfection by Attachment—The Purchase-Money Security Interest in Consumer Goods

Automatic Perfection

Exceptions to the Rule of Automatic Perfection

Perfection and the Classification of Collateral

Effective Time Duration of Perfection

25-2 Scope of a Security Interest

25-2a Proceeds

Proceeds: Under Article 9 of the UCC, whatever is received when collateral is sold or disposed of in some other way.

25-2b After-Acquired Property

After-acquired property: Property that is acquired by the debtor after the execution of a security agreement.

25-2c Future Advances

25-2d The Floating-Lien Concept

Floating lien: A security interest in proceeds, after-acquired property, or collateral subject to future advances by the secured party (or all three).

A Floating Lien in Inventory

A Floating Lien in a Shifting Stock of Goods

25-3 Priorities, Rights, and Duties

25-3a General Rules of Priority

Perfected security interest vs. unsecured creditors and unperfected security interests.

Conflicting perfected security interests.

Conflicting unperfected security interests.

25-3b Exceptions to the General Priority Rules

Buyers in the Ordinary Course of Business

A person who in good faith, and without knowledge that the sale violates the rights of another in the goods, buys goods business of selling goods of that kind.

PMSI in Inventory

Buyers of the Collateral

25-3c Rights and Duties of Debtors and Creditors

The UCC imposes some rights and duties that are applicable unless the security agreement states otherwise.

Information Requests

Release, Assignment, and Amendment

Confirmation or Accounting Request by Debtor

Termination Statement

25-4 Default

25-4a What Constitutes Default

25-4b Basic Remedies

Repossession of the Collateral—The Self-Help Remedy

Judicial Remedies

Execution: Implementation of a court’s decree or judgment

Levy: The legal process of obtaining funds through the seizure and sale of nonexempt property, usually done after a writ of execution has been issued.

25-4c Disposition of Collateral (slide 1 of 3)

Retain collateral in full or partial satisfaction of debt

Sell, lease, license, or dispose of the collateral

Retention of Collateral by the Secured Party

Notice Requirements

Objections

Consumer Goods

25-4c Disposition of Collateral (slide 2 of 3)

Disposition Procedures

Notice Requirement

Commercially Reasonable Manner

Distribution of Proceeds from the Disposition

Reasonable expenses incurred by the secured parties

Balance of debt owed to secured party

Other lienholders who have made written demands

Any surplus from proceeds goes to debtor

25-4c Disposition of Collateral (slide 3 of 3)

Noncash Proceeds

Deficiency Judgment

A judgment against a debtor for the amount of a debt remaining unpaid after the collateral has been repossessed and sold.

Redemption Rights

25-5 Other Laws Assisting Creditors

25-5a Liens

Mechanic’s Lien: Nonpossessory, filed lien on an owner’s real estate for labor, services, or materials furnished for making improvements.

Artisan’s Lien: Possessory lien held by party who has made improvements and added value to personal property of another party as security for payment for services.

Lienholder Must Retain Possession

Foreclosure on Personal Property

25-5a Liens

Judicial Liens

When a debt is past due, a creditor can bring a legal action against the debtor to collect the debt.

Writ of Attachment

A court order to seize a debtor’s nonexempt property prior to a court’s final determination of a creditor’s rights to the property.

Writ of Execution

A court order directing the sheriff to seize (levy) and sell a debtor’s nonexempt real or personal property to satisfy a court’s judgment in the creditor’s favor.

25-5b Garnishment

Garnishment: A legal process whereby a creditor collects a debt by seizing property of the debtor that is in the hands of a third party.

Case Example 21.15 Tinsley v. SunTrust Bank (2016)

Procedures

Limitations

25-5c Creditors’ Composition Agreements

Creditors’ composition agreement: A contract between a debtor and his or her creditors in which the creditors agree to discharge the debts on the debtor’s payment of a sum less than the amount actually owed.

25-5d Suretyship and Guaranty (slide 1 of 2)

Surety: A third party who promises to be responsible for a debtor’s obligation under a suretyship arrangement.

Guaranty

Case Example 21.17 HSBC Realty Credit Corp. (USA) v. O’Neill (2014)

Actions That Release the Surety and Guarantor

Material modification

Surrender of property

Payment or tender of payment

Exhibit 25-3 Suretyship and Guaranty Relationships

25-5d Suretyship and Guaranty (slide 2 of 2)

Defenses of the Surety and the Guarantor

Rights of the Surety and the Guarantor

The Right of Subrogation

The right of a party to stand in the place of another, giving the substituted party the same legal rights that the original party had.

The Right of Reimbursement

The right of a party to be repaid for costs, expenses, or losses incurred on behalf of another.

The Right of Contribution

The right of a co-surety who pays more than his or her proportionate share on a debtor’s default to recover the excess paid from other co-sureties.

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BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e

Roger LeRoy Miller

Bankruptcy

Chapter 26

Chapter Outline

26-1 The Bankruptcy Code

26-2 Chapter 7—Liquidation

26-3 Chapter 11—Reorganization

26-4 Bankruptcy Relief under Chapter 13 and Chapter 12

Learning Objectives (slide 1 of 2)

What are the two main goals of bankruptcy?

In a Chapter 7 bankruptcy, what happens if a court finds that there was “substantial abuse”? How is the means test used?

In a Chapter 11 reorganization, what is the role of the debtor in possession?

Learning Objectives (slide 2 of 2)

How does a Chapter 13 bankruptcy differ from bankruptcy under Chapter 7 and Chapter 11?

26-1 The Bankruptcy Code

26-1a Goals of Bankruptcy Law

To protect a debtor by giving him or her a fresh start without creditors’ claims.

To ensure equitable treatment of creditors who are competing for a debtor’s assets.

26-1b Bankruptcy Courts

26-1c Types of Bankruptcy Relief

Chapter 7 provides for liquidation proceedings.

Chapter 11 governs reorganizations.

Chapter 12 (family farmers/fishermen) and Chapter 13 (individuals) provide for adjustment of the debts of parties with regular income.

26-1d Special Treatment of Consumer-Debtors

Consumer-Debtor: One whose debts result primarily from the purchase of goods for personal, family, or household use.

The Bankruptcy Code requires that the clerk of the court give all consumer-debtors:

Written notice of the general purpose, benefits, and costs of each chapter of bankruptcy under which they may proceed

Information on the types of services available from credit counseling agencies

Landmark in the Law

The Bankruptcy Abuse Prevention and Consumer Protection Act

Makes it more difficult for debtors to obtain a “fresh start” financially

Bankruptcy process has become more time consuming and costly

Changes in the law have left many Americans unable to obtain debt relief

26-2 Chapter 7—Liquidation (slide 1 of 2)

Liquidation: Sale of the nonexempt assets of a debtor and the distribution of the funds received to creditors.

Bankruptcy Trustee: A person appointed by the court to manage the debtor’s funds.

Discharge: Termination of a bankruptcy debtor’s obligation to pay debts.

Petition in Bankruptcy: The document that is filed with a bankruptcy court to initiate bankruptcy proceedings.

26-2 Chapter 7—Liquidation (slide 2 of 2)

26-2a Voluntary Bankruptcy

Chapter 7 Schedules

List of secured and unsecured creditors

Statement of financial affairs of debtor

List of all owned property

List of current income and expenses

Certificate of credit counseling

Proof of payments received from employers

Statement of monthly income, itemized

Copy of debtor’s federal income tax return

26-2a Voluntary Bankruptcy (slide 1 of 3)

Tax Returns during Bankruptcy

Substantial Abuse and the Means Test

The Basic Formula

Applying the Means Test to Future Disposable Income

Can the Debtor Afford to Pay Unsecured Debts?

Case Example 26.1 In re Buoy (2017)

26-2a Voluntary Bankruptcy (slide 2 of 3)

Additional Grounds for Dismissal

Convicted of violent crime or drug-trafficking

Fails to pay postpetition domestic-support

Order for Relief

A court’s grant of assistance to a debtor in bankruptcy that relieves the debtor of the immediate obligation to pay debts.

26-2a Voluntary Bankruptcy (slide 3 of 3)

26-2b Involuntary Bankruptcy

Requirements

If the debtor has twelve or more creditors, three or more of those creditors having unsecured claims totaling at least $15,325 must join in the petition.

If a debtor has fewer than twelve creditors, one or more creditors having a claim of $15,325 or more may file.

Order for Relief

The debtor generally is not paying debts as they become due.

A general receiver, assignee, or custodian took possession of, or was appointed to take charge of, substantially.

26-2c Automatic Stay (slide 1 of 2)

Automatic Stay: In bankruptcy proceedings, the suspension of almost all litigation and other actions by creditors against the debtor or the debtor’s property. The stay is effective the moment the debtor files a petition in bankruptcy.

The Adequate Protection Doctrine

A doctrine that protects secured creditors from losing the value of their security (because the collateral depreciates, for instance) as a result of an automatic stay in a bankruptcy proceeding.

26-2c Automatic Stay (slide 2 of 2)

Exceptions to the Automatic Stay

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Paul ?Barton owned a small property-management company, doing business as ?Brighton Homes. In October, Barton went on a spending spree. First, he ?bought a Bose surround-so

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