1. Chapter 13

2.  Credit: Extension of a loan from one party to another  Creditor (lender): The lender in a credit transaction  Debtor (borrower): The borrower in a credit transaction 13-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

3. 13-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

4.  Unsecured credit: Credit that does not require any security (collateral) to protect the payment of the debt  Collateral: Personal property that is subject to a security agreement  Secured credit: Credit that requires security (collateral) that secures payment of the loan 13-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

5. 13-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

6.  Mortgage is a two-party instrument  Some states’ laws provide for the use of a deed of trust and note in place of a mortgage  Note: An instrument that evidences a borrower’s debt to the lender  Deed of trust: An instrument that gives a creditor a security interest in the debtor’s real property that is pledged as collateral for a loan 13-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

7.  A statute that requires:  A mortgage or deed of trust to be recorded in the county recorder’s office of the county in which the real property is located  An improperly recorded document is not effective against:  Subsequent purchasers of the real property  Other mortgagees or lienholders who have no notice of the prior mortgages 13-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

8.  A judgment of a court that permits a secured lender to recover other property or income from a defaulting debtor  If the collateral is insufficient to repay the unpaid loan  Antideficiency statute: A statute that prohibits deficiency judgments regarding certain types of mortgages  Such as those on residential property 13-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

9. 13-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

10.  Mechanic’s lien: A contractor’s, laborer’s, and material person’s statutory lien  It makes the real property to which services or materials have been provided security for the payment of the services and materials  Personal property  Tangible property such as equipment, vehicles, furniture, and jewelry  Intangible property such as securities, patents, trademarks, and copyrights 13-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

11.  An article of the Uniform Commercial Code that governs secured transactions in personal property  Includes changes to provisions that have been controversial in the past  Contains new provisions that recognize changes in the commercial environment  Provides rules for the creation, filing, and enforcement of electronic secured transactions 13-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

12.  A written document signed by a debtor that creates a security interest in personal property  A valid agreement must  Clearly describe the collateral so that it can be readily identified  Contain the debtor’s promise to repay the creditor, including terms of repayment  Set forth the creditor’s rights upon the debtor’s default  Be signed by the debtor 13-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

13.  Attachment  A creditor has an enforceable security interest against a debtor and can satisfy the debt out of the designated collateral  Floating lien  A security interest in property that was not in the possession of the debtor when the security agreement was executed 13-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

14.  A floating lien can attach to the following  After-acquired property: Property that a debtor acquires after a security agreement is executed  Sale proceeds – The secured party automatically has the right to receive sale proceeds of sale, exchange, or disposition of the collateral subject to an agreement  Future advances: Funds advanced to a debtor from a line of credit secured by collateral 13-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

15.  A process that establishes the right of a secured creditor against other creditors who claim an interest in the collateral  Three methods  Perfection by filing a financing statement  Perfection by possession of collateral  Perfection by a purchase money security interest in consumer goods 13-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

16.  Financing statement: A document filed by a secured creditor with the appropriate government office  It constructively notifies the world of his or her security interest in personal property  It must contain ▪ The name of the debtor ▪ The name and address of the secured party or a representative of the secured party ▪ The collateral covered by the financing statement  UCC Financing Statement: A uniform financing statement form that is used in all states 13-16 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

17.  A rule that says if a secured creditor has physical possession of the collateral, no financing statement has to be filed  The creditor’s possession is sufficient to put other potential creditors on notice of the creditor’s secured interest in the property  Perfection by a purchase money security interest in consumer goods  The creditor automatically obtains interest when he or she extends credit to a consumer to purchase consumer goods 13-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

18.  The order in which conflicting claims of creditors in the same collateral are solved  Secured vs. unsecured  Competing unperfected security interests  Perfected vs. unperfected claims  Competing perfected security interests 13-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

19.  A person who in good faith and without knowledge of another’s ownership or security interest in goods buys the goods in the ordinary course of business from a person in the business of selling goods of that kind  Default and remedies  The parties are free to define “default” in their security agreement  Remedy – Repossession of the goods from the defaulting debtor 13-19 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

20.  In Revised Article 9 “record” means information that is  Inscribed on a tangible medium  Stored in an electronic or other medium  Retrievable in perceivable form  Financing statements to perfect a security interest in personal property may be:  In electronic form  Filed and stored as an electronic record 13-20 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

21. 13-21 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Type of Arrangement PartyLiability Surety contractSuretyPrimarily liable. The surety is a co-debtor who is liable to pay the debt when it is due. Guaranty contractGuarantorSecondarily liable. The guarantor is liable to pay the debt if the debtor defaults and the creditor has attempted unsuccessfully to collect the debt from the debtor.

22.  Bankruptcy Abuse Prevention and Consumer Protection Act of 2005  A federal act that substantially amended federal bankruptcy law  This act makes it more difficult for debtors to file for bankruptcy and have their unpaid debts discharged  Bankruptcy Code: The name given to federal bankruptcy law, as amended 13-22 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

23. 13-23 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. ChapterType of Bankruptcy Chapter 7Liquidation Chapter 11Reorganization Chapter 12Adjustment of Debts of a Family Farmer or Fisherman with Regular Income Chapter 13Adjustment of Debts of an Individual with Regular Income

24.  Special federal courts that hear and decide bankruptcy cases  Federal law establishes the office of the U.S. Trustee  U.S. Trustee – A federal government official who has responsibility for handling and supervising many of the administrative tasks associated with a bankruptcy case 13-24 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

25. Voluntary petition A petition filed by a debtor which states that the debtor has debts Involuntary petition A petition filed by creditors of a debtor which alleges that the debtor is not paying his or her debts as they become due Proof of claim A document required to be filed by a creditor that states the amount of his or her claim against the debtor Proof of interest A document required to be filed by an equity security holder that states the amount of his or her interest against the debtor 13-25 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

26.  The suspension of certain legal actions by creditors against a debtor or the debtor’s property  Prevents creditors from ▪ Instituting legal actions to collect prepetition debts ▪ Enforcing judgments obtained against the debtor ▪ Obtaining or enforcing liens against property of the debtor ▪ Engaging in self-help activities 13-26 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

27.  A debtor’s property and earnings that comprise the estate of a bankruptcy proceeding  Exempt property: Property that may be retained by a debtor pursuant to federal or state law that does not become part of the bankruptcy estate  The 2005 act  Limits abusive homestead exemptions  Gives the bankruptcy court the power to void certain fraudulent transfers of the debtor’s property by the debtor 13-27 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

28.  A form of bankruptcy  The debtor’s nonexempt property is sold for cash, the cash is distributed to the creditors, and any unpaid debts are discharged  Median income test: A bankruptcy rule which states  If a debtor’s median family income is at or below the state’s median family income for a family the same size as the debtor’s family, the debtor can receive Chapter 7 relief 13-28 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

29.  A rehabilitation form of bankruptcy  Permits bankruptcy courts to supervise the debtor’s plan for the payment of unpaid debts in installments over the plan period  Chapter 13 plan of payment  Plan must commit to payment of the debtor’s disposable income during the plan period to pay prepetition creditors  Chapter 13 discharge  Granted to the debtor after the debtor’s plan of payment is completed (which could be three years or up to five years) 13-29 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

30.  A form of bankruptcy that allows the reorganization of the debtor’s financial affairs under the supervision of the bankruptcy court  Plan of reorganization: Sets forth a proposed new capital structure for a debtor to assume when it emerges from Chapter 11 reorganization bankruptcy  Automatic stay  The filing of a Chapter 11 petition stays actions by creditors to recover the debtor’s property 13-30 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

31.  A contract or lease that has not been fully performed  With the bankruptcy court’s approval, a debtor may reject executory contracts and unexpired leases in bankruptcy  Chapter 11 discharge  The bankruptcy court will confirm a plan of reorganization if the creditors agree to the plan 13-31 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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