Debtor and Creditor

Debtor and Creditor Law

Debtor & Creditor law governs situations where one party is unable to pay a monetary sum to another and uses the principle of indebtedness.

Indebtedness exists where a person is under a present legal obligation to pay in the present or a future time to another person a sum of money. The person with the legal obligation to pay the sum of money is called the debtor while the person who is owed the monetary sum is called the creditor.

Types of Creditors:

Generally, there are three main types of creditors:

  1. Creditors who have a lien against a particular piece of property. This particular piece of property (or proceeds from its sale or foreclosure) must be used to satisfy the debt to the lien-creditor before it can be used to satisfy debts to any other creditors. A lien may arise many different ways, such as through statute, agreement between the parties, or judicial proceeding.
  2. Creditors who have a priority interest. A priority interest usually arises through statutory law. If a creditor has a priority interest then his debt must be paid when the debtor becomes insolvent or before any other debts are paid to secondary creditors.
  3. The third and final type of creditor is one who has neither a lien against the debtor’s property or is the subject of a statutory priority.

Creditor Remedies:

There are many ways a creditor can have debts that are owed to them satisified. Creditors use judicial and statutory processes to have debts satisfied.

  • Attachment: A limited statutory remedy whereby a creditor has the property of a debtor seized to satisfy an existing debt.
  • Garnishment: The creditor is able to collect part of a debt (debtor’s wages) to satisfy the existing obligation.
  • Replevin: This allows a creditor to seize personal goods that the debtor has a property interest in, to satisfy the existing debt.
  • Receivership: This involves the appointing of a third party by a court of law to dispose of the debtor’s property in order to satisfy the existing debt. Creditors commonly seek to create a lien on a debtor’s property through a judicial process of lien creation, which is governed by state law. Once a lien has been created, state statutory law governs how the lien is executed against the debtor’s property. The sale of property subject to a lien to satisfy the debt is also governed by state statutory law. Federal and state statutes, and the Federal Consumer Credit Protection Act also limit the type of property that can be used to satisfy a debt.

Debtor Remedies:

A debtor has potential remedies against exisiting creditors as well. One type of remedy is called bankruptcy. Bankruptcy is defined as the legally declared inability or impairment of ability of an individual (debtor) or organization to pay its existing creditors.

Creditors may file a bankruptcy action against a debtor (known as an involuntary bankruptcy) in an effort to recoup a portion of what they are owed or initiate a restructuring of payment owed to them. In most cases, bankruptcy is usually initiated by the debtor (know as a voluntary bankruptcy) that is filed by the insolvent debtor or organization) to absolve debts or monetary obligations to exisiting creditors.

Attorneys specializing in Creditor & Debtor law must have insight and knowledge in areas such as Bankruptcy Law, Property Law, Tax Law, Commercial Law, Consumer Law and many other legal areas that govern the existing legal obligations between potential creditors and debtors.

Individuals looking for an attorney specializing in Creditor & Debtor law need to find someone who is well versed in the United States Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. A good attorney specializing in Creditor & Debtor law will also understand the subtle differences between the many different bankruptcy chapter filings (Chapter 7, 9, 11, 13, etc.) and apply the appropriate rules and regulations in preparing the appropriate case, negotiating the right settlement, or presenting the correct evidence and arguments in pursuing the proper course of action for a potential creditor or debtor.

Please contact the Law Offices of Douglas C. Anton, Esq. for a case evaluation and to schedule an appointment.

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