THE ABCS OF DEBTA C A S E S T U D Y A P P R O A C H
T O D E B T O R / C R E D I T O R R E L AT I O N S
A N D B A N K R U P T C Y L A W
Class 1 Slides (Chapters 1 and 2) 1
INTRODUCTION
• This class will cover:
– Part A: The creation of debt
– Part B: The collection of debt
– Part C: The discharge or reorganization of debt in
bankruptcy
Class 1 Slides (Chapters 1 and 2) 2
DEBTOR/CREDITOR LAW
• Debtor/creditor law is closely related to the study of the
law of contracts.
• The primary source of debt is a contractual relationship
between the debtor and creditor.
• Debtor/creditor law is closely related to the study of
property law, including both real property and personal
property.
Class 1 Slides (Chapters 1 and 2) 3
DEBT
• Debt: Generally, an obligation to pay money
• Debtor: Person liable for a debt
• Creditor: One to whom a debt is owed
• Consumer debt: Debt incurred for personal, family, or
household purposes.
• Commercial debt: Debt incurred for business or
commercial purposes.
Class 1 Slides (Chapters 1 and 2) 4
CURRENT AND FUTURE DEBT
• A debt may be current, meaning that it is owed at this
moment or
• It may be future, meaning that the obligation exists now
but need not be satisfied until sometime in the future.
Class 1 Slides (Chapters 1 and 2) 5
UN/LIQUIDATED AND NON/CONTINGENT
• A debt may be liquidated, meaning that we know its dollar value to the penny, or
• It may be unliquidated, meaning that we do not yet know its dollar value.
• A debt may be fixed or noncontingent, meaning that nothing else needs to happen for the obligation to exist or it may be contingent, meaning that it will only exist if and when another event occurs.
• A debt may be disputed by the debtor in whole or part or it may be undisputed.
Class 1 Slides (Chapters 1 and 2) 6
UNSECURED AND SECURED DEBT
• A debt to pay money may be unsecured, meaning that
upon default of the debtor’s obligation to pay, the
creditor’s only resort is to seek a court judgment against
the debtor, or
• The debt may be secured, which means that upon
default, the creditor may be able to seize certain
designated real or personal property of the debtor to
satisfy the obligation.
Class 1 Slides (Chapters 1 and 2) 7
DEBTOR/CREDITOR LAW AND BUSINESS ORGANIZATIONS
• This course is also closely related to the law of business
organizations because debtor/creditor issues often arise
in the context of a business operation.
Class 1 Slides (Chapters 1 and 2) 8
HOW DEBT IS CREATED
• Most debt is created by contract. A contract is nothing
more than a legally enforceable agreement. There are
many kinds of contracts that create a debtor/creditor
relationship.
• A Promissory note: A contract containing an enforceable
promise by one person to pay another person a certain
sum of money, the principal.
Class 1 Slides (Chapters 1 and 2) 9
COMMON TYPES OF CONTRACTS
• Contracts for the sale or lease of real or personal
property
• Contracts for the loan of money
• Contracts for the extension of credit
• Contracts for the provision of services
Class 1 Slides (Chapters 1 and 2) 10
ASSIGNMENT
• Assignment: The transfer of rights under a contract from a party named in the contract to a third party.
– Nonassignment clause: a provision in a contract that prohibits one or both parties from assigning the contract to a third party.
• Delegation: The transfer of obligations under a contract from a party named in the contract to a third party.
• Novation: The agreement of a creditor to release one debtor from a contract and to look instead to a substituted debtor.
Class 1 Slides (Chapters 1 and 2) 11
CREATION OF DEBT BY LAW
• State and local governments and the federal government have statutes (or ordinances in the case of local governments) that will operate to create debt as a matter of law (without consent of the debtor or court action).
• The tax laws are a prime example.
• If you have income taxable by the federal or state governments, or if you own real property subject to property taxes, debt is created without your consent.
Class 1 Slides (Chapters 1 and 2) 12
ALTERNATIVE DISPUTE RESOLUTION
• Mediation: A form of alternative dispute resolution in
which an impartial person serving as mediator uses back
and forth dialogue with the disputing parties to assist
them in reaching a settlement.
• Arbitration: A form of ADR in which the disputing parties
agree that a third person arbitrator, or panel of
arbitrators, may hear the dispute informally and render a
decision. May be binding or nonbinding.
Class 1 Slides (Chapters 1 and 2) 13
FINAL JUDGMENT
• Final judgment: An order or decree entered by a court
finally resolving the issues before it.
• Judgment creditor/ debtor: Once a final judgment is
entered by a court awarding a money judgment to one
party, the party to whom the judgment is awarded is the
judgment creditor and the one against whom it is
awarded is the judgment debtor.
Class 1 Slides (Chapters 1 and 2) 14