FBE 458: Business Law (Kevin Fields - USC) Midterm II

What is the Government in the Sunshine Act?

A federal statute that requires most federal administrative agency meetings to be open to the public.

Who else is allowed to assert defense against a creditor besides the principal debtor?

A surety or guarantor.

What is the liability of franchisees?

Franchisees are liable on their own contracts and are liable for their own torts (e.g., negligence)

How do franchisors manage their trade secrets with franchisees?

Franchisors license and disclose many of their trade secrets to franchisees. Trade secrets: A product formula, design, compilation of data, customer list or another business secret franchisors are often owners of. Example: Coca-Cola soft drink.

What is Administrative law a combination of?

Administrative law is a combination of substantive and procedural law.

What is primarily liability?

Liability of a surety (co-debtor) where the surety has co-signed another person's debt and promises to be liable for paying the debt.

What are the legislative powers delegated to the administrative agencies?

Substantive Rulemaking, Interpretive Rulemaking, Issuing Statements of Policy, Granting of Licenses.

What is substantive administrative law?

Substantive administrative law is law that administrative agencies enforce-federal statutes enacted by Congress or state statutes enacted by state legislatures.

What is used as collateral for a secured transaction?

Tangible personal property (things that are movable) and Intangible personal property (nonphysical)

Why may a Chapter 13 plan be modified?

A Chapter 13 plan may be modified if the debtor's circumstances materially change. For example, if the debtor's income subsequently decreases, the court may decrease the debtor's payments under the plan.

What is the purpose of creating administrative agencies?

The purpose of creating administrative agencies is for the government to administer and enforce new statutes or laws A. Sometimes when the legislative branch enacts a new statute, it authorizes an existing administrative agency to administer and enforce the law B. Example: When Congress enacted the Securities Act of 1933 and the Securities Exchange Act of 1934, it created the Securities and Exchange Commission (SEC), a federal administrative agency, to administer and enforce those statutes.

What is the right of redemption and how may it be accomplished?

The right of redemption is the right of a mortgagor to recover real property that is collateral for a mortgage after the debtor's default and before foreclosure by paying the mortgage the full amount of the debt plus costs. This is in the event of a debtor's default and the debtor or another secured party may redeem the collateral before the priority lien holder has disposed of it, entered into a contract to dispose of it, or discharged the debtor's obligation by having exercised a right to retain the collateral. In regards to specificity of accomplishing the right of redemption, it may happen by payment of all obligations secured by the collateral, all expenses reasonably incurred by the secured party in retaking and holding the collateral, and any attorneys' fees and other legal expenses provided for in the security agreement and not prohibited by the law.

What are administrative agencies informally referred to as?

"Fourth branch of government."

What is needed to extend an additional 5-year period for the financing statement?

A continuation statement is needed to be filed up to 6 months prior to the expiration of a financing statement's 5-year term. Such statements are effective for a new 5-year term. Succeeding continuation statements may be filed.

What is the delegation doctrine?

A doctrine that says when an administrative agency is created, it is delegated certain powers; the agency can use only those legislative, judicial, and executive powers that are delegated to it.

What is the Equal Access to Justice Act?

A federal statute that protects persons from harassment by federal administrative agencies and provides monetary penalties.

What does it mean in perfection by filing a financing statement?

In a secured transaction, perfecting a creditor's security interest in collateral by filing a financing statement in the appropriate government office. It is the most common method.

What are state administrative agencies? What is their main effect? What are examples?

Administrative agencies that states create to enforce and interpret state law. All states create administrative agencies to enforce and interpret state regulatory law. They have a profound effect on business. They are empowered to enforce statutes to adopt rules and regulations to interpret the statutes they are empowered to administer. Examples: Most states have corporation departments to enforce state corporation law and regulate the issuance of securities, banking departments to license and regulate the operation of banks, fish, and game departments to regulate fishing and hunting within the state's boundaries, workers' compensation boards to decide workers' compensation claims for injuries that occur on the job, and environmental protection departments to regulate the land, waterways, and other environmental issues.

What is a security interest in real property?

An interest in real property that arises if an owner of real property borrows money from a lender and pledges the real property as security for repayment of the loan.

What is a county recorder's office?

An office where deeds, mortgages, and other documents pertaining to real property located in the county are recorded and security interests in personal property are often recorded.

What does the freedom of information act specify for agencies in terms of time limits?

The act specifies the time limits for agencies to respond to requests for information, set limits on copying charges, and provides for disciplinary action against agency employees who refuse to honor proper requests for information.

How is a bankruptcy estate created?

The bankruptcy estate is created on the commencement of a bankruptcy case. It includes all the debtor's legal and equitable interests in real, personal, tangible, and intangible property, wherever located, that exist when the petition is filed, and all interests of the debtor and the debtor's spouse in community property.

What happens in the case that if the proceeds from the disposition of collateral are not sufficient to satisfy the debt to the secured party?

The debtor remains personally liable to the secured party for the payment of the deficiency. The secured party may bring an action to recover a deficiency judgement (def. A judgement 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.) against the debtor. Example Sean borrows $15,000 from First Bank to purchase a new automobile. He signs a security agreement, giving First Bank a purchase money security interest in the automobile. Sean defaults after making payments that reduce the debt to $13,250. First Bank repossesses the automobile and sells it at a public auction for $11,000. The selling expenses and sales commission are $1,250. This amount is deducted from the proceeds. The remaining $9,750 is applied to the $13,250 balance of the debt. Sean remains personally liable to First Bank for the $3,500 deficiency ($13,250 balance − $9,750 proceeds).

What is the Bankruptcy Code?

The federal bankruptcy law as amended, which is contained in Title 11 of the U.S. Code. The Bankruptcy code establishes procedures for filing for bankruptcy, resolving creditors' claims, and protecting debtors' rights.

What has been the resolution to this problem?

The federal government and several state governments have adopted mandatory disclosure requirements that franchisors must make to prospective franchisees.

What must the Franchisor disclose when making sales or earnings projections for a potential franchise location that are based on the financials of an existing franchise?

The franchisor must disclose (1) the number and percentage of its actual franchises that have obtained such results (those being the sales or earnings projections for a potential franchise location that are based on the actual sales, income, or profit figures of an existing franchise). (2) A cautionary statement in at least 12-point boldface type that reads "Caution: some outlets have sold (or earned) this amount. There is no assurance you'll do as well. If you rely upon our figures, you must accept the risk of not doing so well."

What is an automatic stay designed for?

The stay, which applies to collection efforts of secured and unsecured creditors, is designed to prevent a scramble for the debtor's assets in a variety of court proceedings.

What is a debtor allowed to do with regard to lines of credit?

A debtor may establish a continuing or revolving line of credit at a bank. Certain personal property of the debtor is designated as collateral for future loans from the line of credit. A maximum limit that the debtor may borrow is set, but the debtor can draw against the line of credit at any time. Any future advances made against the line of credit are subject to the security interest in the collateral. A new security agreement does not have to be executed each time a future advance is taken against the line of credit. Example: A technology company establishes a $1 million line of credit at a bank and pledges its patents as security for loans taken against the line of credit. The company borrows $600,000 against the line of credit. The loan is secured by the patents. The technology company pays back the $600,000. Subsequently, the company borrows $500,000 against the line of credit. This loan is secured by the patents.

What is a deed of trust?

A deed of trust is an instrument that gives the creditor a security interest in the debtor's property that is pledged as collateral.

What is a discharge and when does the court grant a debtor discharge?

A discharge is a discharge from liability on negotiable instruments. In this case, it would be a discharge of all or some of the debtor's debts. If the requirements are met, the court grants the debtor a discharge of all or some of the debts in Chapter 7 (liquidation), Chapter 11 (reorganization), Chapter12 (family farmer and family fisherman), and Chapter 13 (adjustment of debts) bankruptcies.

What is a distributorship franchise? What is an example of a distributorship franchise?

A distributorship franchise is a business in which a franchisor manufactures a product and licenses a franchisee (in other words, the franchisee acts as a retail dealer) to distribute the product to the public. Example: Ford Motor Company (franchisor) manufactures automobiles and franchises independently owned automobile dealers (franchisees) to sell them to the public.

What is the U.S. Department of Homeland Security (DHS)? What does the DHS contain?

A federal cabinet-level department that enforces laws to prevent domestic terrorist attacks and related criminal activities, reduce vulnerability to terrorist attacks, and assist in recovery in the event of a terrorist attack. The DHS contains the Bureau of Customs and Border Protection, the Bureau of Citizenship and Immigration Services, the U.S. Secret Service, the Federal Emergency Management Agency, the Federal Computer Incident Response Center, the National Domestic Preparedness Office, the U.S. Coast Guard, and portions of the Federal Bureau of Investigation, Treasury Department, Commerce Department, Justice Department, and other federal government agencies.

What is the Consumer Financial Protection Bureau (CFPB)? What authority does it have?

A federal government agency (created in 2010) that has the authority to supervise all participants in the consumer finance and mortgage area, including depository institutions, such as commercial and savings banks, and nondepository parties such as insurance companies, mortgage brokers, credit-counseling firms, debt collectors, and debt buyers. The bureau has the authority to prohibit unfair, deceptive, or abusive acts or practices regarding consumer financial products and services. In addition, they have the authority to enforce federal consumer financial protection laws and is authorized to adopt rules to interpret and enforce the provisions of the acts it administers. The bureau has investigative and subpoena powers and is a watchdog over credit cards, debit cards, mortgages, payday loans.

What is the Homeland Security Act (HSA)? What did the act also create?

A federal statute that created the cabinet-level U.S. Department of Homeland Security (DHS) and enacted laws to prevent domestic terrorist attacks and related criminal activities. Passed in 2002. The act placed 22 federal agencies with approximately 200,000 employees under the umbrella of the DHS, which is the second-largest government agency after the Department of Defense.

What is the Consumer Leasing Act (CLA)?

A federal statute that extends the TILA coverage to lease terms in consumer leases. The CLA applies to lessors who engage in leasing or arranging leases for consumer goods in the ordinary course of their business. Casual leases (such as leases between consumers) are not subject to the CLA. Creditors that violate the CLA are subject to the civil and criminal penalties provided in the TILA.

What is the freedom of information act?

A federal statute that gives the public the ability to obtain access to most documents in the possession of federal administrative agencies. Some documents are protected from disclosure because of national security and other reasons.

What is the Equal Credit Opportunity Act (ECOA)? What happens if the creditor violates the ECOA?

A federal statute that prohibits discrimination in the extension of credit based on sex, marital status, race, color, national origin, religion, age, or receipt of income from public assistance programs. The ECOA applies to all creditors that extend or arrange credit in the ordinary course of their business, including banks, savings and loan associations, automobile dealers, real estate brokers, credit card issuers, and so on. The creditor must notify the applicant within 30 days regarding the action taken on a credit application. If the creditor takes an adverse action (i.e., denies, revokes, or changes the credit terms), the creditor must provide the applicant with a statement containing the specific reasons for the action. If a creditor violates the ECOA, the consumer may bring a civil action against the creditor and recover actual damages (including emotional distress and embarrassment).

What is the Fair Debt Collection Practices Act (FDCPA)?

A federal statute that protects consumer-debtors from abusive, deceptive, and unfair practices used by debt collectors. The FDCPA expressly prohibits debt collectors from using certain practices: (1) harassing, abusive, or intimidating tactics (e.g., threats of violence, obscene or abusive language); (2) false or misleading misrepresentations (e.g., posing as a police officer or an attorney); and (3) unfair or unconscionable practices (e.g., threatening the debtor with imprisonment).

What is the Fair Credit Billing ACT (FCBA)?

A federal statute that regulates billing errors involving consumer credit. The act requires that creditors promptly acknowledge in writing consumer billing complaints and investigate billing errors. The act prohibits creditors from taking actions that adversely affect the consumer's credit standing until the investigation is completed. The act affords other protection during disputes. The amendment requires creditors to post payments promptly to the consumer's account and either refund overpayments or credit them to the consumer's account.

What is the Fair Credit Reporting Act?

A federal statute that regulates credit reporting companies. This act protects a consumer who is the subject of a credit report by setting rules for consumer reporting agencies—that is, credit bureaus that compile and sell credit reports for a fee. Consumers may request the following information at any time: (1) the nature and substance of all the information in their credit file, (2) the sources of this information, and (3) the names of recipients of their credit report. If a consumer challenges the accuracy of pertinent information contained in a credit file, the agency may be compelled to reinvestigate. If the agency cannot find an error, despite the consumer's complaint, consumers may file a 100-word written statement of their version of the disputed information. If a consumer reporting agency or user violates the FCRA, injured consumers may bring a civil action against the violator and recover actual damages. The FCRA also provides for criminal penalties.

What is the Fair Credit and Charge Card Disclosure Act?

A federal statute that requires disclosure of credit terms on credit card and charge card solicitations and applications. The regulations adopted under the act require that any direct written solicitation to a consumer display, in tabular form, the following information: (1) the APR, (2) any annual membership fee, (3) any minimum or fixed finance charge, (4) any transaction charge for use of the card for purchases, and (5) a statement that charges are due when the periodic statement is received by the debtor. Violations of consumer financial protection statutes are subject to fines, criminal prosecution, and civil lawsuits.

What is the privacy act?

A federal statute that stipulates that federal administrative agencies can only maintain information about an individual that is relevant and necessary to accomplish a legitimate agency purpose. The act permits persons to have access to their records and to correct information.

What does the filing of either a voluntary petition or an unchallenged involuntary petition constitute?

An order for relief

What do anti deficiency statutes usually apply to? What do anti deficiency statutes not protect?

Anti Deficiency statutes usually apply only to first purchase money mortgages (i.e., mortgages that are taken out to purchase houses.) Second mortgages and other subsequent mortgages, even mortgages that refinance the first mortgage, usually are not protected by anti deficiency statutes. Example: Assume that a house is located in a state that has an antideficiency statute. Qian buys the house for $800,000. She puts $200,000 down and borrows $600,000 of the purchase price from First Bank, which takes a mortgage on the property to secure the loan. This is a first purchase money mortgage. Subsequently, Qian borrows $100,000 from Second Bank and gives a second mortgage to Second Bank to secure the loan. Qian defaults on both loans, and when she defaults, the house is worth only $500,000. Both banks bring foreclosure proceedings to recover the house. First Bank can recover the house worth $500,000 at foreclosure. However, First Bank has a deficiency of $100,000 ($600,000 loan − $500,000 foreclosure sale price). Because of the state's antideficiency statute, First Bank cannot recover this deficiency from Qian; First Bank can recover only the house in foreclosure and must write off the $100,000 loss. Second Bank's loan, a second loan, is not covered by the antideficiency statute. Therefore, Second Bank can sue Qian to recover its $100,000 deficiency from Qian's other property.

When is apparent agency created?

Apparent agency is created when a franchisor leads a third person into believing that the franchisee is its agent. Example: a franchisor and franchisee who use the same trade name and trademarks and make no effort to inform the public of their separate legal status may find themselves in such a situation. However, mere use of the same name does not automatically make a franchisor liable for the franchisee's actions. The court's decision of whether an apparent agency has been created depends on the facts and circumstances of the case.

What are the definitions used in secured transactions?

Debtor—A person who has an ownership or other interest in the collateral and owes payment of a secured obligation [Revised UCC 9-102(a)(28)].Example A farmer who purchases a large John Deere tractor from a retail dealer on credit and gives the secured creditor an interest in the collateral is the debtor. Secured party—A person in whose favor a security interest is created or provided under a security agreement [Revised UCC 9-102(a)(72)].Example In the previous example, the John Deere retail dealer is the secured creditor. The secured party can be the seller (e.g., the John Deere retail dealer), another lender (e.g., a bank), or buyer of accounts (e.g., an investor who purchases the security interest). Security interest—An interest in the collateral, such as personal property or fixtures, that secures payment or performance of an obligation [UCC 1-201(b)(35)].Example In the previous example, the debtor-farmer gave the retail dealer-secured creditor a security interest in the John Deere tractor. Security agreement—An agreement that creates or provides for a security interest [Revised UCC 9-102(a)(73)].Example In the prior example, when the farmer purchased the John Deere tractor from the retail dealer on credit, the retail dealer may require, as a condition of the sale, that the farmer sign a security agreement giving the retail dealer a secured interest in the tractor. If this is done and the farmer defaults on the payments, the John Deere retail dealer can foreclose on its security agreement and recover the tractor. Collateral—The property that is subject to a security agreement [Revised UCC 9-102(a)(12)].Example In the previous example, the John Deere tractor is the collateral for the security agreement. Financing statement—The record of an initial financing statement or filed record relating to the initial financing statement [Revised UCC 9-102(a)(39)]. This is Form UCC 1 (UCC Financing Statement). The financing statement is usually filed with the appropriate state office to give public notice of the secured party's security interest in the collateral.Example In the previous example, if the retail dealer (the secured creditor) files a financing statement, it has given public notice of its secured interest in the collateral, the John Deere tractor.

What must the security agreement have?

Describe the collateral clearly so that it can be readily identified. Contain the debtor's promise to repay the creditor, including terms of repayment (e.g., interest rate, time of payment). Set forth the creditor's rights on the debtor's default. Be signed by the debtor

What is the availability and purpose of the filings in a county recorder's office?

Filings are public record and alert the world that a mortgage or deed of trust has been recorded against the real property. This record gives potential lenders or purchasers of real property the ability to determine whether there are any existing liens (mortgages) on the property.

How does a franchise agreement occur?

First, a prospective franchisee must apply to the franchisor for a franchisee with a franchise application. A franchise application includes detailed information about the applicant's previous employment, financial and educational history and credit status. Second, if an applicant is approved, the parties enter into a franchise agreement that sets forth the terms and conditions of the franchise. Franchise agreements do not usually have much room for negotiation Generally, the agreement is a standard-form contract prepared by the franchisor Most states require franchise agreements to be in writing

What is the general rule of liability for franchisors and franchisees?

Generally, neither party is liable for the contracts or torts of the other. Example: Suppose that McDonald's Corporation, a fast-food restaurant franchisor, grants a restaurant franchise to Tina Corporation. Tina Corporation opens the franchise restaurant. One day, a customer at the franchise spills a chocolate shake on the floor. The employees at the franchise fail to clean up the spilled shake, and 1 hour later, another customer slips on the spilled shake and suffers severe injuries. The injured customer can recover damages from the franchisee, Tina Corporation, because it was negligent. It cannot recover damages from the franchisor, McDonald's Corporation. Suppose that in the preceding example, McDonald's Corporation, the franchisor, grants a franchise to Gion Corporation, the franchisee. McDonald's Corporation enters into a loan agreement with City Bank whereby it borrows $100 million. Gion Corporation, the franchisee, is not liable on the loan. McDonald's Corporation, the franchisor and debtor, is liable on the loan.

What is the classification (business types) of the franchisor and franchisee?

Generally, the franchisor and the franchisee are established as separate corporations.

What is included in the bankruptcy estate?

Gifts, inheritances, life insurance proceeds, and property from divorce settlements that the debtor is entitled to receive within 180 days after the petition is filed are part of the bankruptcy estate. Earnings from property of the estate-such as rents, dividends, and interest payments-are property of the estate.

What is substantive rule?

Government regulation that has the force of law and must be adhered to by covered persons and businesses. It is much like a statute. Administrative agencies are authorized in engaging in rule making and issuing substantive rules from the creation of federal statutes.

What happens to the remaining unpaid debts in a Chapter 7 bankruptcy?

In a Chapter 7 bankruptcy, the property of the estate is sold, and the proceeds are distributed to satisfy allowed claims. The remaining unpaid debts that the debtor incurred prior to the date of the order for relief are discharged. Discharge means that the debtor is no longer legally responsible for paying those claims. The major benefit of a Chapter 7 discharge is that it is granted quite soon after the petition is filed. The individual debtor is not responsible for paying prepetition debts out of postpetition income, as would be required in other forms of bankruptcy. Example:Suppose that at the time that Eric is granted Chapter 7 relief, he still owes $50,000 of unsecured debt that there is no money in the bankruptcy estate to pay. This debt is composed of credit card debt, an unsecured loan from a friend, and unsecured credit from a department store. This $50,000 of unsecured credit is discharged. This means that Eric is relieved of this debt and is not legally liable for its repayment. The unsecured creditors must write off this debt.

What is the debtor called in a Chapter 11?

In most Chapter 11 cases, the debtor is left in place to operate the business during the reorganization proceeding. In such cases, the debtor is called a debtor-in-possession. The court may appoint a trustee to operate the debtor's business only on a showing of cause, such as fraud, dishonesty, or gross mismanagement of the affairs of the debtor by current management. The debtor-in-possession is empowered to operate the debtor's business during the bankruptcy proceeding. This power includes authority to enter into contracts, purchase supplies, incur debts, and so on. Credit extended by postpetition unsecured creditors in the ordinary course of business is given automatic priority as an administrative expense in bankruptcy.

Why is a deed of trust referred to as a three-party instrument?

In the deed of trust transaction, there are three parties: the beneficiary (aka. lender-creditor), the trustee (def. a party who holds legal title to the trust corpus and manages the trust for the benefit of the beneficiary or beneficiaries) and the trustor (aka. the owner-debtor). The trustee, often another bank or a title company, holds legal title to the real property on behalf of the bank until the amount borrowed has been paid. Although legal title is vested in the trustee, the trustor has full legal rights to possession of the real property.

What does the power of granting licenses mean?

The administrative agency that regulates the specific area involved is granted licensing power to determine whether to grant a license to an applicant. Statutes often require the issuance of a government license before a person can enter certain types of industries or professions; thus, the administrative agency is authorized in determining whether an applicant is able to be licensed.

What is a subfranchisor? What is an example of a company using a subfranchisor?

The area franchise is called a subfranchisor. An area franchisee who has been granted for an area franchise for a designated geographical area and who has the authority to negotiate and sell franchises on behalf of the franchisor in that area. Example, If KFC Corporation wants to enter a foreign country to operate its restaurants, it could grant an area franchise to a foreign company operating in that country, which would then choose the individual franchisees.

What must an attorney do if representing a debtor in bankruptcy?

The attorney must conduct a thorough investigation of the debtor's financial position and schedules to determine the accuracy of the information contained in the petition and schedules.

Who is subject to monetary fines and sanctions when there are factual discrepancies?

The attorney representing the debtor in bankruptcy.

What system are bankruptcy courts a part of?

The bankruptcy courts are part of the federal court system. Additionally, one bankruptcy court is attached to each of the 94 U.S. district courts in the country.

When must the debtor submit the Chapter 13 plan of payment?

The debtor's Chapter 13 plan of payment must be filed not later than 90 days after the order for relief. The debtor must file information about his or her finances, including a budget of estimated income and expenses during the period of the plan. The Chapter 13 plan may be either up to 3 years or up to 5 years, depending on a complicated calculation specified in the Bankruptcy Code. The plan must be submitted to secured and unsecured creditors for acceptance. The plan is confirmed as to a secured creditor or an unsecured creditor if that creditor accepts the plan. If a secured creditor does not accept the plan, the court may still confirm the plan if the secured creditor will be paid in full, including arrearages, during the plan. If an unsecured creditor objects to the plan, the court may still confirm the plan if the debtor agrees to commit all disposable income during the plan period to pay the unsecured creditors. However, during the plan period, unsecured creditors might not receive full payment of the debt owed to them.

What does the automatic stay do in a Chapter 11?

The filing of a Chapter 11 petition stays (suspends) actions by creditors to recover the debtor's property. This automatic stay suspends certain legal actions against the debtor or the debtor's property, including the ability of creditors to foreclose on assets given as collateral for their loans to the debtor. This automatic stay is extremely important to a business trying to reorganize under Chapter 11 because the debtor needs to keep its assets to stay in business. Example Big Oil Company owns a manufacturing plant and has borrowed $50 million from a bank, using the plant as collateral for the loan. If Big Oil Company files for Chapter 11 bankruptcy, the automatic stay prevents the bank from foreclosing and taking the property. Once out of bankruptcy, Big Oil Company must pay the bank any unpaid arrearages and begin making the required loan payments again.

What must an individual debtor submit upon filing a voluntary petition?

The following schedules: A list of secured and unsecured creditors, with addresses A list of all property owned A statement of the financial affairs of the debtor A statement of the debtor's monthly income Current income and expenses Evidence of payments received from employers within 60 days prior to the filing of the petition A copy of the debtor's federal income tax return for the most recent year ending prior to the filing of the petition. In addition, an individual must file a certificate stating that he or she has received the required prepetition credit counseling. All forms must be sworn under oath and signed by the debtor.

What can the franchisee do if the franchise is terminated without just cause?

The franchisee can sue the franchisor for wrongful termination. The franchisee can recover damages caused by the unlawful termination and recover the franchise. This is in other words a breach of the franchise agreement and a wrongful termination of a franchise.

What is the relationship between the franchisor and the franchisee (in terms of liability)?

The franchisor deals with the franchisee as an independent contractor. Why? The franchisor and franchisee are separate legal entities (when a franchise is properly organized and operated)

What is the liability of a franchisor if the franchisee acts as an actual or apparent agent of the franchisor?

The franchisor is responsible for the torts committed and contracts entered while the franchisee was acting within the scope of agency.

Who is the franchisor and who is the franchisee?

The franchisor is synonymous to the licensor. The franchisor licenses another party to use their trade name, trademarks, commercial symbols, patents, copyrights and business model in the distribution and selling of goods and services. The franchisee is synonymous to the licensee. The franchisee uses the franchisor's property (i.e. trademarks, patents, etc.) for the distribution and selling of goods and services.

What must the Franchisor disclose when making sales or earnings projections based on hypothetical examples?

The franchisor must disclose (1) the assumptions underlying the estimates (2) the number and percentage of actual franchises that have obtained such results (3) A cautionary statement in at least 12-point boldface type that reads "Caution: some outlets have sold (or earned) this amount. There is no assurance you'll do as well. If you rely upon our figures, you must accept the risk of not doing so well."

What topics do franchise agreements usually cover?

1. Licensing of intellectual property A franchise agreement usually contains a license that grants the franchisee the right to use certain intellectual property- such as trademarks, service marks, trade secrets, trade names, logos, patents, copyrights, etc.- that are owned by the franchisor. Often, the importance of this intellectual property is what prompts a party to become a franchisee of the franchisor. Example: McDonald's licenses to franchisees the rights to use its trademarks and service marks, such as "McDonald's," "Big Mac," "Chicken McNuggets," and its design, the Golden Arches. 2. Initial License Fee An initial license fee is a lump-sum payment for the privilege of being granted a franchise Example: The initial franchise fee for a McDonald's franchise is approximately $45,000 3. Royalty Fees A royalty fee is a fee for the continued use of the franchisor's trade name, property, and assistance that is often computed as a percentage of the franchisee's gross sales. Royalty fees are usually paid monthly Example: McDonald's charges its franchisees a royalty fee for the use of McDonald's name that is approximately 12.5% of monthly gross sales. 4. Assessment Fee An assessment fee is a fee for such things as advertising and promotional campaigns and administrative costs, billed either as a flat monthly or an annual fee or as a percentage of gross sales Examples: McDonald's charges its franchisees approximately 4% of new sales and puts this money in a special fund to pay for advertising and promotion 5. Lease fees Lease fees are payments for any land or equipment leased from the franchisor, billed either as a flat monthly or an annual fee or as a percentage of gross sales or other agreed-on amount. Example: McDonald's owns the real estate on which a franchisee operates its franchise. McDonald's charges a franchisee rent, which is calculated as a percentage of monthly net sales. This runs between 5 and 20% of monthly net sales. 6. Cost of Supplies Cost of Supplies involves payment for supplies purchased from the franchisor. Example: If a franchisee purchases the cups, wrappers, plastic tableware, and other items from McDonald's, the franchisee is responsible for paying McDonald's for these supplies. McDonald's has licensed other suppliers to sell supplies to McDonald's franchisees, but such suppliers must be pre-approved by McDonald's and meet the quality-control standards set by McDonald's 7. Consulting fees and other expenses Many franchisors charge the franchisee a monthly or annual consulting fee for expert help in conducting business. 8. Territory The franchisee will be assigned a geographical territory The designation will appear in the franchisee agreement Some franchise agreements grant an exclusive territory where the franchisee has an area exclusive only to that franchisee. The franchisor cannot grant other franchises in this territory. Some franchise agreements do not designate exclusive territories and permit a franchisor to locate additional franchisees within specified areas. I think this is a reference to example of the franchisee being allowed all of a particular franchise in say Hawaii or Texas or Southern California 9. Quality-control standards Quality control standards are the standards set forth in a franchise agreement that require a franchisee to meet certain quality standards established by the franchisor These include the franchisor's right to make periodic inspections of the franchisee's premises and operations Failure to meet these proper standards can result in loss of the franchise 10. Training requirements Franchisees and their personnel are usually required to attend training programs either on-site or at the franchisor's training facilities Example: McDonald's requires that a new franchisee go through a rigorous 9-to 12 month training program before opening a franchise. 11. Covenant not to compete A contract that provides that a seller of a franchisee will not engage in a similar business or occupation within a specified area for a specified time following the termination of the franchise; also called a noncompete clause Covenants not to compete prohibit franchisees from competing with the franchisor during a specific time and in a specified area after the termination of the franchise Unreasonable (over-extensive) covenants not to compete are void. 12. Arbitration clause A clause in a contract that requires disputes (any claim or controversy arising from the franchise agreement or an alleged breach thereof) arising out of the contract to be submitted to arbitration Duration A franchisee agreement will set forth the duration of the franchise Example: McDonald's grants franchises for a 20-year initial term that can be renewed for 20 years if the franchisee meets certain conditions 13. Other terms and conditions May include restrictions on the use of the franchisor's trade name, trademarks, and logo; standards of operation; record-keeping requirements, sign requirements; hours of operation; prohibition as to the sale or assignment of the franchise; conditions for the termination of the franchise; and other specific terms pertinent to the operation of the franchise and the protection of the parties' rights. 14. Total investment The franchise agreement often specifies the total investment that a franchisee must provide in order to granted the franchise Example: McDonald's - The total investment by a franchisee to open a McDonald's franchise ranges from about $1 million to $2 million.

What is a joint venture?

A joint venture is an arrangement in which 2 or more business entities combine their resources to pursue a single project or transaction.

What is a recording statute?

A state 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.

What is the goal of bankruptcy law?

A "fresh start." The goal is to grant a debtor relief from some of his or her burdensome debts while protecting creditors by requiring the debtor to pay more of his or her debts than would otherwise have been required prior to the 2005 act. Essentially, the goal of bankruptcy law is to balance the rights of debtors and creditors and provide methods for debtors to be relieved of some debt to obtain a fresh start.

How is an ALJ's decision issued?

An ALJ's decision is issued in the form of an administrative order.

What may any party of interest do if a discharge obtained through fraud of the debtor?

Any party of interest may bring a motion to have the bankruptcy revoked. The bankruptcy court may revoke a discharge within one year after it is granted.

What is the difference between extension or composition?

An extension provides for a longer period of time for the debtor to pay the debts. Example A debtor who is obligated to pay a debt within one year petitions the bankruptcy court to extend the time in which to pay the debt to 3 years. A composition provides for the reduction of a debtor's debts. Example A debtor who owes an unsecured creditor $10,000 petitions the court to reduce the unsecured debt owed the creditor to $7,000.

What are the number of years in each term for bankruptcy judges?

Bankruptcy judges, specialists who hear bankruptcy proceedings, are appointed for 14-year terms.

What is a future advance?

Funds advanced to a debtor from a line of credit secured by collateral. Future advances are future withdrawals from a line of credit.

What is formal rulemaking?

Rulemaking where the agency must conduct a trial-like hearing at which the parties may present evidence, engage in cross-examination, present rebuttal evidence, and the like.

What does the freedom of information act require administrative agencies to do?

The act requires federal administrative agencies to publish agency procedures, rules, regulations, interpretations, and other such information in the Federal Register. The act also requires agencies to publish quarterly indexes of certain documents.

What authority is backing the courts' decision in upholding the combined power of administrative agencies?

The courts are upholding this as constitutional. Therefore, if an administrative agency acts outside the scope of its delegated powers, it commits an unconstitutional act.

What happens if a secured creditor whose claim (against a debtor in a bankruptcy proceeding) exceeds the value of the collateral?

They may submit a proof of claim and become an unsecured claimant as to the difference.

What are administrative agencies?

Agencies that the legislative and executive branches of federal and state governments establish A. They are created by federal, state, and local governments to enforce regulatory statutes B. They range from large, complex federal agencies, such as the federal Department of Homeland Security, to local zoning boards C. There are more than 100 federal administrative agencies D. Thousands of other administrative agencies have been created by state and local governments

What is collateral?

Security against repayment of the debt that lenders sometimes require; can be a car, a house, or other property. The property that is subject to the security interest.

What are the characteristics of security interests?

Security interests may be taken in real, personal, intangible, and other property.

What is an administrative law judge (AJL)? Who is typically an AJL?

A judge who presides over administrative proceedings and decides questions of law and fact concerning a case. An ALJ is an employee of an administrative agency.

What are anti deficiency statutes?

A statute that prohibits deficiency judgements regarding certain types of mortgages, such as loans for the original purchase of residential property.

What happens if the debtor challenges an involuntary petition?

A trial is held to determine whether an order for relief should be granted. If an order is granted, the case is accepted for further bankruptcy proceedings. In the case of an involuntary petition, the debtor must file the same schedules by voluntary petition debtors.

What does the delegation doctrine permit an administrative agency to do?

An agency can adopt a rule or regulation (a legislative function), prosecute a violation of the statute or rule (an executive function), and adjudicate the dispute (a judicial function).

What is not a part of the bankruptcy estate in a Chapter 7 liquidation bankruptcy?

Earnings from services performed by an individual debtor are not part of the bankruptcy estate in a Chapter 7 liquidation bankruptcy.

What happens if the evidence obtained constitutes a violation of the Fourth Amendment (in other words, an unreasonable search and seizure)?

The "tainted" evidence is inadmissible (not accepted as valid) in court.

How is the priority of the claims determined?

(1) Whether the claim is unsecured or secured. (2) The time at which secured claims were attached or perfected.

What is the Administrative Procedure Act (APA)?

(1946) A federal statute that establishes certain administrative procedures that federal administrative agencies must follow in conducting their affairs.

What factors do a creditor rely on when deciding whether to make a loan?

The creditor considers the debtor's credit history, income, and other assets.

What is the mission of the DHS?

The mission of the DHS is to enforce laws to prevent domestic terrorist attacks and related criminal activities, reduce vulnerability to terrorist attacks, minimize the harm caused by such attacks, and assist in recovery in the event of a terrorist attack.

What is the difference between a lender/creditor and a borrower/debtor?

The party extending the credit is the lender/creditor and the party borrowing the money is the borrower/debtor.

What is the reason for default not being defined in Article 9 of the UCC?

The term default is not defined because it allows the parties to be free in defining it in their security agreement. Events such as failing to make scheduled payments when due, bankruptcy of the debtor, breach of the warranty of ownership as to the collateral, and other such events are commonly defined in security agreements as default. This also allows the secured party to be able to reduce a claim to judgement, foreclosure, or otherwise enforce a security interest by any available judicial procedure.

What are the four types of bankruptcy?

(1) Chapter 7: Liquidation (2) Chapter 11: Reorganization (3) Chapter 12: Adjustment of Debts of a Family Farmer or Fisherman with Regular Income (4) Chapter 13: Adjustment of Debts of an Individual with Regular Income

What are the actions by a creditor that are stayed?

(1) Instituting or maintaining legal actions to collect prepetition debts (2) Enforcing judgements obtained against the debtor (3) Obtaining, perfecting, or enforcing liens against the property of the debtor (4) Nonjudicial collection efforts, such as self-help activities (e.g., repossession of an automobile

What are the three main methods of perfecting a security interest under the UCC?

(1) Perfection by filing a financing statement. (2) Perfection by possession of collateral. (3) Perfection by a purchase money security interest in consumer goods.

What are the UCC rules for determining priority of claims of creditors?

(1) Secured versus unsecured claims: A creditor who has the only secured interest in the debtor's collateral has priority over unsecured interests. (2) Competing unperfected security interests: If two or more secured parties claim an interest in the same collateral but neither has a perfected claim, the first to attach has priority. (3) Perfected versus unperfected claims: If two or more secured parties claim an interest in the same collateral but only one has perfected a security interest, the perfected security interest has priority. (4) Competing perfected security interests: If two or more secured parties have perfected security interests in the same collateral, the first to perfect (e.g., by filing a financing statement, by taking possession of the collateral) has priority (5) Perfected secured claims in fungible, commingled goods: If a security interest in goods is perfected but the goods are later commingled with other goods in which there are also perfected security interests and the goods become part of a product or mass and lose their identity, the security interests rank equal and according to the ratio that the original cost of goods of each security interest bears to the cost of the total product or mass.

What are the two types of petitions that can be filed to commence a bankruptcy case?

(1) Voluntary petition: A voluntary petition is a petition filed by the debtor. It can be filed by the debtor in Chapter 7 (liquidation, Chapter 11 (reorganization), Chapter 12 (family farmer or fisherman), and Chapter 13 (adjustment of debts) bankruptcy cases. The petition has to state that the debtor has debts. (2) Involuntary Petition: An involuntary petition is a petition that is filed by a creditor or creditors and places the debtor into bankruptcy. An involuntary petition can be filed in Chapter 7 (liquidation) and Chapter 11 (reorganization) cases; an involuntary petition cannot be filed in Chapter 12 (family farmer or fisherman) or Chapter 13 (adjustment of debts) cases.

What does it mean if the debtor is judgement proof and how does that affect the creditor?

A debtor is judgement proof when he has little or no property or no income to repay the loan. The creditor may never collect. Example: Arnold borrows $15,000 from Mary. Mary lends the money to Arnold without taking an interest in collateral for the loan. This is an unsecured loan. Mary is relying on Arnold's credit standing when she makes the loan. If Arnold defaults on the loan, Mary has no collateral to foreclose on. Mary's recourse is to sue Arnold to recover the unpaid loan amount.

What may the trustee do if the debtor's equity in the property (i.e., the value above the amount of mortgages and liens) exceeds the exemption limits?

The trustee may sell the property to realize the excess value for the bankruptcy estate. Example: Assume that a debtor owns a principal residence worth $500,000 that is subject to a $400,000 mortgage and the debtor therefore owns $100,000 of equity in the property. The debtor files a petition for Chapter 7 liquidation bankruptcy. The trustee may sell the home, pay off the mortgage, pay the debtor $23,675 (applying the federal exemption), and use the remaining proceeds of $76,325 for distribution to the debtor's creditors.

What happens if a franchisor violates FTC disclosure rules?

The wrongdoer is subject to an injunction against further franchise sales, civil fines, and an FTC civil action on behalf of injured franchisees to recover damages from the franchisor that were caused by the violation.

What are the parties of a joint venture called?

Joint venturers

What are the 4 basic forms of franchises?

1. Distributorship Franchise 2. Processing Plant Franchise 3. Chain-Style Franchise 4. Area Franchise

What are the duties of a joint venturer and what is the result of violating these duties?

Joint venturers owe each other the fiduciary duties of loyalty and care. If a joint venturer violates these duties, it is liable for the damages for the breach causes.

What do joint ventures resemble?

Joint ventures resemble partnerships, except that partnerships are usually formed to pursue ongoing business operations rather than to focus on a single project or transaction.

What is administrative law?

Law enacted by government to regulate industries, businesses, and professionals Also, substantive and procedural law that governs the operation of administrative agencies

How do you initiate a Chapter 13 proceeding?

A Chapter 13 proceeding can be initiated only through the voluntary filing of a petition by an individual debtor with regular income. A creditor cannot file an involuntary petition to institute a Chapter 13 case. An individual with regular income is one whose income is sufficiently stable and regular to enable the individual to make payments under a Chapter 13 plan. Regular income may be from any source, including wages, salary, commissions, and from investments, Social Security income, pension income, or public assistance. The debts of the individual debtor must be primarily consumer debt. Consumer debt means debts incurred by an individual for personal, family, or household purposes. The petition must be filed in good faith. The petition must state that the debtor desires to obtain an extension or a composition of debts, or both. An extension provides for a longer period of time for the debtor to pay the debts. Example A debtor who is obligated to pay a debt within one year petitions the bankruptcy court to extend the time in which to pay the debt to 3 years. A composition provides for the reduction of a debtor's debts. Example A debtor who owes an unsecured creditor $10,000 petitions the court to reduce the unsecured debt owed the creditor to $7,000.

What is a U.S. Trustee?

A U.S. Trustee is a federal government official who has responsibility for handling and supervising many of the administrative tasks associated with a bankruptcy case. A U.S. Trustee is empowered to perform many of the tasks that the bankruptcy judge previously performed.

When is a bankruptcy case commenced?

A bankruptcy case is commenced when a petition is filed with a bankruptcy court.

What is licensing?

A business arrangement that occurs when the owner of intellectual property (the licensor) contracts to permit another party (the licensee) to use the intellectual property Occurs when one business or party that owns the trademarks, service marks, trade names, and other intellectual property (the licensor) contracts to permit another business or party (the licensee) to use its trademarks, service marks, trade names, and other intellectual property in the distribution of goods, services, software, and digital information.

What is procedural due process?

A category of due process that requires the government to give a person proper notice and hearing of the legal action before that person is deprived of his or her life, liberty, or property. It also requires the respondent to be given proper and timely notice of the allegations or charges against him or her and an opportunity to present evidence on the matter.

What is a termination-at-will clause? What is the rationale for it?

A clause in a franchise agreement that permits a franchisor to terminate a franchise without cause; these clauses are generally held to be void. The rationale for this position is that the franchisee has spent time, money, and effort developing the franchise.

What is a construction lien (mechanic's lien)?

A contractor's, laborer's, and material person's statutory lien that makes the real property to which services or materials have been provided security for the payment of the services and materials. They are often called by more specific names, such as supplier's lien (also called material person's lien) for those parties supplying lien, laborer's lien for persons providing labor, and design professional's lien for those parties providing architectural and design services.

What is a joint venture corporation? What is the significance of this and liability of this?

A corporation owned by two or more joint venturers that is created to operate a joint venture. Significance: Joint venturers are shareholders of the corporation. The corporation is liable for its debts and obligations, but the joint venturers are liable for the debts and obligations of the corporation only up to their capital contributions. Suppose that in the preceding example, ChevronTexaco Corporation and ConocoPhillips Corporation form a third corporation, called Canadian Imperial Corporation, to operate a joint venture. ChevronTexaco and ConocoPhillips each contribute $100 million capital to Canadian Imperial Corporation, and each becomes a shareholder of Canadian Imperial Corporation. If the joint venture fails and Canadian Imperial Corporation owes $1 billion to its creditors, which it cannot pay, ChevronTexaco and ConocoPhillips each lose their $100 million capital contributions but are not liable for any further unpaid debts or obligations of Canadian Imperial Corporation.

What must a creditor file against a debtor in a bankruptcy proceeding?

A creditor must file a proof of claim stating the amount of the claim against the debtor. The document for filing a proof of claim is provided by the court. The proof of claim must be timely filed, which generally means within 6 months of the first meeting of the creditors.

What is perfection by a purchase money security interest in consumer goods?

A creditor who extends credit to a consumer to purchase a consumer good under a written security agreement obtains a security interest in the consumer good that automatically perfects the creditor's security interest at the time of the sale. Also known as perfection by attachment or the automatic perfection rule. In addition, the creditor does not have to file a financing statement or take possession of the goods to perfect the security interest. Example Marcia buys a $1,500 television for her home on credit extended by the seller, Television Store. Television Store requires Marcia to sign a security agreement. Television Store has a purchase money security interest in the television that is automatically perfected at the time of the credit sale.

When can a debtor not be granted Chapter 13 discharge?

A debtor cannot be granted Chapter 13 discharge if the debtor has received discharge under Chapter 7, 11, or 12 within the prior 4-year period or Chapter 13 relief within the prior 2-year period of the order for relief in the current Chapter 13 case.

What is a chain-style franchise? What is an example of a chain-style franchise?

A franchise arrangement in which a franchisor licenses the franchisee to make and sell its products or distribute its services to the public from a retail outlet serving an exclusive geographical territory. The product is made or the service is provided by the franchise. Example: Most fast-food franchises use this form. The Pizza Hut Corporation franchises independently owned restaurant franchises to make and sell pizzas to the public under the Pizza Hut name.

What is an area franchise? What is the purpose of an area franchise?

A franchise arrangement in which a franchisor licenses the franchisee to make and sell its products or distribute its services to the public from a retail outlet serving an exclusive geographical territory. The product is made or the service is provided by the franchise. Example: Most fast-food franchises use this form. The Pizza Hut Corporation franchises independently owned restaurant franchises to make and sell pizzas to the public under the Pizza Hut name.

What is a license?

A grant of permission to use trademarks, service marks, trade names, and other intellectual property Example: Walt Disney Company owns the merchandising rights to Winnie the Pooh stories and all the characters associated with the stories. The Walt Disney Company enters into an agreement whereby it permits the Beijing Merchandising Company, a business formed under Chinese law, to manufacture and distribute a line of clothing, children's toys, and other items bearing the likeness of the Winnie the Pooh characters. This is a license. The Walt Disney Company is the licensor, and the Beijing Merchandising Company is the licensee.

What is a deficiency judgement?

A judgement 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. The mortgagee is entitled by the courts to recover the amount of the judgement from the mortgagor's other property. or, A deficiency judgement is a ruling made by a court against a debtor in default on a secured loan, indicating that the sale of a property to pay back the loan did not cover the outstanding debt in full. It is mostly a lien place on the debtor for further money. Example: Kaye buys a house for $800,000. She puts $200,000 down and borrows $600,000 from a bank, which takes a mortgage on the property to secure the loan. Kaye defaults, and when the bank forecloses on the property, it is worth only $500,000. There is a deficiency of $100,000 ($600,000 loan − $500,000 foreclosure sale price). The bank can recover the $100,000 deficiency from Kaye's other property. The bank has to bring a legal action against Kaye to do so

What happens if a debtor sells, exchanges, or disposes of collateral subject to a security agreement?

The secured party automatically has the right to receive the sale proceeds of the sale, exchange, or disposition. Example: Zip, Inc. is a retail automobile dealer. To finance its inventory of new automobiles, Zip borrows money from First Bank and gives the bank a security interest in the inventory. Zip sells an automobile that is subject to the security agreement to Phyllis, who signs an installment sales contract, agreeing to pay Zip for the car in 24 equal monthly installments. If Zip defaults on its payment to First Bank, the bank is entitled to receive the remaining payments from Phyllis.

What is a foreclosure sale? What is required for a foreclosure sale? Who must be paid?

A legal procedure by which a secured creditor causes the judicial sale of the secured real estate to pay a defaulted loan. Under this method, the debtor's default may trigger a legal court action for foreclosure. Any party having an interest in the property-including owners of the property and other mortgagees or lienholders-must be named as defendants. If the mortgagee's case is successful, the court will issue a judgement that orders the real property to be sold at a judicial sale. The procedures for a foreclosure action and sale are mandated by state statute. Any surplus must be paid to the mortgagor. Example: Christine borrows $500,000 from Country Bank to buy a house. Christine (mortgagor) gives a mortgage to Country Bank (mortgagee), making the house collateral to secure the loan. Later, Christine defaults on the loan. Country Bank can foreclose on the property and follow applicable state law to sell the house at a judicial sale. If the house sells for $575,000, the bank keeps $500,000 and must remit $75,000 to Christine. Most state statutes permit the mortgagee-lender to recover the costs of the foreclosure and judicial sale from the sale proceeds before remitting the surplus to the mortgagor-borrower

What is a lien?

A lien is a legal or right against a property. Liens provide security, allowing a person or organization to take property or take other legal action to satisfy debts and obligations. Liens are often part of the public record, informing potential creditors and others about existing debts.

What is a major benefit of Chapter 11?

A major benefit of Chapter 11 bankruptcy is that the debtor is given the opportunity to accept or reject certain executory contracts and unexpired leases. Executory contracts or unexpired leases are contracts or leases that have not been fully performed. A contract to purchase goods or supply goods at a later date is an executory contract. A 20-year office lease that has 8 years left until it is completed is an unexpired lease. Other executory contracts and unexpired leases may include consulting contracts, contracts to purchase or provide services, equipment leases, warehouse leases, automobile and equipment leases, leases for office and commercial space, and the like. Under the Bankruptcy Code, a debtor-in-possession (or trustee) in a Chapter 11 proceeding is given authority to assume or reject executory contracts. In general, the debtor rejects unfavorable executory contracts and assumes favorable executory contracts. The debtor is not liable for damages caused by the rejection of executory contracts and unexpired leases in bankruptcy. Examples Big Oil Company enters into a contract to sell oil to another company, and the contract has 2 years remaining when the oil company files for Chapter 11 bankruptcy. This is an executory contract. Big Oil Company has leased an office building for 20 years from a landlord to use as its headquarters, and it has 15 years left on the lease when it declares bankruptcy. This is an unexpired lease. In the Chapter 11 reorganization proceeding, Big Oil Company can reject (get out of) either the executory contract or the unexpired lease without any liability; it can keep either one if doing so is in its best interests.

What is a mortgage?

A mortgage is a legal document you sign when you buy or refinance a home that gives the lender the right to take the property if you don't repay the loan. A copy of your mortgage is filed in the county records as a lien, or legal claim, against the home. The type of collateral arrangement known as a mortgage is a two-way party instrument in which a property owner who borrows money from a creditor may use the real estate as collateral for repayment of the loan.

What is a note?

A note is an instrument that evidences the borrower's debt to the lender.

What is a notice of lien?

A notice filed by a lienholder with the county recorder's office in the county in which real property is located stating that a mechanic's lien has been filed against the property.

What is a joint venture partnership? What is the liability of a joint venture partnership?

A partnership owned by two or more joint venturers that is formed to operate a joint venture. If a joint venture is operated as a partnership, then each joint venturer is considered a partner of the joint venture In a joint venture partnership, each party is liable for the debts and obligations of partnership. A new oil field is discovered in northern Canada. Two large oil companies, ChevronTexaco Corporation and ConocoPhillips Corporation, would each like to drill for oil there, but neither one has sufficient resources to do so alone. They join together to form a joint venture partnership, and each contributes $100 million capital to the joint venture. If the joint venture fails and the joint venture owes $1 billion to its creditors, which it cannot pay, ChevronTexaco and ConocoPhillips are each responsible for the joint venture's unpaid debts and obligations. This is because they are partners in the joint venture.

Who is a buyer in the ordinary course of business?

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. A buyer in the ordinary course of business who purchases goods from a merchant takes the goods free of any perfected or unperfected security interest in the merchant's inventory, even if the buyer knows of the existence of the security interest. The rule is necessary because buyers would be reluctant to purchase goods if a merchant's creditors could recover the goods if the merchant defaulted on the loans owed to the secured creditors. Example Central Car Sales, Inc. (Central), a new car dealership, finances all its inventory of new automobiles at First Bank. First Bank takes a security interest in Central's inventory of cars and perfects this security interest. Kim, a buyer in the ordinary course of business, purchases a car from Central for cash. The car cannot be recovered from Kim even if Central defaults on its payments to the bank.

What is a power of sale?

A power stated in a mortgage or deed that permits foreclosure without court proceedings and sale of the property through an auction. Most states permit foreclosure by power of sale, although this must be expressly conferred in the mortgage or deed of trust. No court action is necessary. Some states have enacted statutes that establish the procedure for conducting the sale. Such a sale must be by auction for the highest price obtainable and any surplus must be paid to the mortgagor.

What is a writ of attachment? How do you obtain a writ of attachment?

A prejudgement court order that permits the seizure of a debtor's property while the lawsuit is pending. To obtain a writ of attachment, a creditor must follow the procedures of state law, give the debtor notice, and post a bond with the court. Example: Taryn sues Justin for fraud. Taryn lost a large sum of money to Justin when she invested in what she alleges was a fraudulent investment scheme. Because it may take more than one year before the case is heard, Taryn is afraid that Justin will transfer any money or property he has to avoid having to pay a judgment if he loses at trial. Taryn can immediately make a motion to the court to have the court issue a writ of attachment ordering the seizure of Justin's property, pending the outcome of the lawsuit. The court will do so if it determines that there is some merit to Taryn's claim against Justin and there is justification to believe that Justin might dispose of his property prior to the trial.

What is a statement of policy?

A statement issued by the administrative agency that announces a proposed course of action that an agency intends to follow in the future. They do not have the force of law and neither public notice nor participation are required.

What is the benefit of a strategic alliance?

A strategic alliance allows the companies to reduce risks, share costs, combine technologies, and extend their markets. Example: Companies often enter strategic alliances when they decide to expand internationally into foreign countries.

What is the concept of a perfection of a security interest?

A process that establishes the right of a secured creditor against other creditors who claim an interest in the collateral.

What is rule making?

A process whereby administrative agencies adopt rules and regulations

What is a processing plant franchise? What is an example of a processing plant franchise?

A processing plant franchise is a franchise arrangement in which a franchisor provides a secret formula or process to a franchisee, and the franchisee manufactures the product and distributes it to retail dealers. The franchisee manufactures the product at its own location. Coca-Cola Corporation (franchisor), which owns the secret formula for making Coca-Cola and other soft drinks, sells syrup concentrate to regional bottling companies (franchisees), who add water and sweeteners and produce and distribute soft drinks under the Coca-Cola name and other brand names.

What must an equity security holder (e.g., a shareholder of a corporation) file against a debtor in a bankruptcy case?

A proof of interest which states the amount of his or her interest against the debtor.

When may a reaffirmation agreement be entered into?

A reaffirmation agreement must be entered into before discharge is granted and must be filed with the court. Additionally, Approval by the court is required if the debtor is not represented by an attorney. If the debtor is represented by an attorney, the attorney must certify that the debtor voluntarily entered into the reaffirmation agreement and understands the consequences of the agreement. Even if the debtor is represented by an attorney, court approval is required if the agreement will cause undue hardship on the debtor or his or her family.

What is interpretive rule?

A rule adopted by an administrative agency that interprets existing statutory language. These rules do not establish new laws. Neither public notice nor public participation is required.

What is administrative search?

A search of business or other premises conducted by an administrative agency. This power is used if the required information (that being information from the persons and businesses under investigation as well as from other sources) is not supplied voluntarily. This is typically addressed through this power and the agency issuing an administrative subpoena.

What may a secured creditor do instead of disposing or repossessing the collateral in the event of a debtor defaulting?

A secured creditor may relinquish the security interest in the collateral and proceed to judgement against the debtor to recover the underlying debt. This course of action is rarely chosen unless the value of the collateral has been reduced below the amount of the secured interest and the debtor has other assets from which to satisfy the debt. Example Suppose Jack borrows $100,000 from First Bank to purchase a piece of equipment, and First Bank perfects its security interest in the equipment for this amount. Jack defaults when he owes $80,000 on the loan. If the equipment has gone down in value to $60,000 at the time of default but Jack has other personal assets to satisfy the debt, it may be in the bank's best interest to relinquish its security interest, sue Jack, and proceed to judgment on the underlying debt.

How may a secured party repossess collateral?

A secured party may repossess the collateral pursuant to judicial process or without judicial process if the self-help repossession of the collateral does not breach the peace.

What is required to create a security interest in personal property?

A security agreement signed by the debtor.

What is a floating lien?

A security interest in property that was not in the possession of the debtor when the security agreement was executed. It can attach to after-acquired property, sale proceeds, and future advances.

What is a security interest?

A security interest is an enforceable legal claim or "lien" on collateral that the borrower provides that allows the lender to repossess the collateral and sell it if the loan goes bad.

What is credit?

A situation in which one party makes a loan to another party.

What are the downsides of a strategic alliance?

A strategic alliance does not have the same protection as mergers, joint ventures, or franchising, and sometimes they are dismantled. Also, a strategic alliance partner may become a future potential competitor.

What is a strategic alliance?

A strategic alliance is an arrangement between 2 or more companies whereby they agree to ally themselves and work together to accomplish a designated objective.

What is a nonrecordation of a mortgage and how does that affect a mortgage?

A situation that occurs if a mortgage or deed of trust is not recorded in the county recorder's office in the county in which the real property is located. The nonrecordation of a mortgage (or deed of trust) does not affect either the legality of the instrument between the mortgagor and the mortgagee of the rights and obligations of the parties. In other words, the mortgagor is obligated to pay the amount of the mortgage according to the terms of the mortgage, even if the document is not recorded. However, an improperly recorded document is not effective against either (1) subsequent purchasers of the real property or (2) other mortgagees or lienholders who have no notice of the prior mortgages. Example: Eileen purchases a house for $500,000. She borrows $400,000 from Boulevard Bank and gives the bank a mortgage on the house for this amount. Boulevard Bank fails to record the mortgage. Eileen then applies to borrow $400,000 from Advance Bank. Advance Bank reviews the real estate recordings and finds no mortgage recorded against the property, so it lends Eileen $400,000. Advance Bank records its mortgage. Later, Eileen defaults on both loans. In this case, Advance Bank can foreclose on the house because it recorded its mortgage. Boulevard Bank, even though it made the first loan to Eileen, does not get the house and can only sue Eileen to recover the unpaid loan.

What is a default situation?

A situation that occurs when a debtor that does not make the required payments on a debt. In terms of real estate, a debtor that does not make the required payments on a secured real estate transaction is in default.

Where must a financing statement be filed?

A state may choose either the secretary of state or the county recorder's office in the county of the debtor's residence or, if the debtor is not a resident of the state, in the county where the goods are kept or in another county office or in both.

What is the difference between a three-party secured transaction and two-party secured transaction?

A three-party secured transaction is a transaction that occurs when a seller sells goods to a buyer who has obtained financing from a third-party lender who takes a security interest in the goods sold. A two-party secured transaction is a transaction that occurs when a seller sells goods to a buyer on credit and retains a security interest in the goods. Example: A farmer purchases equipment on credit from a farm equipment dealer. The dealer retains a security interest in the farm equipment that becomes collateral for the loan. This is a two-party secured transaction. The farmer is the buyer-debtor and the farm equipment dealer is the seller-lender-secured creditor. Example: A business purchases an airplane from an airplane manufacturer. The business obtains a loan to purchase the airplane from a bank, which obtains a security interest in the airplane. The airplane manufacturer is paid for the airplane out of the proceeds of the loan. This is a three-party secured transaction. The airplane manufacturer is the seller, the purchasing business is the buyer-debtor, and the bank is the lender-secured creditor.

What is the Uniform Franchise Offering Circular (UFOC)? What is special about the UFOC?

A uniform disclosure document developed by state franchise administrators that requires a franchisor to make specific presale disclosures to prospective franchisees. The UFOC satisfies both sale regulations and the FTC

What is a writ of execution?

A writ of execution is a court order directing the sheriff or other government officials to seize the debtor's property in the debtor's possession and authorizes a judicial sale of that property. Certain property is exempt from levy (e.g., tools of trade, clothing, homestead exemption). The proceeds are used to pay the creditor the amount of the final judgment. Any surplus must be paid to the debtor. Example Aamir wins a $25,000 judgment against Nicole. Nicole refuses to pay the amount of the judgment to Aamir. Aamir can obtain a postjudgment writ of execution from the court whereby the court directs the sheriff to seize Nicole's automobile and other property and have them sold at public auction to satisfy the judgment she owes Aamir.

What is a writ of garnishment?

A writ of garnishment is a postjudgment court order that permits the seizure of a debtor's property that is in the possession of third parties. The creditor (also known as the garnishor) must go to court to seek a writ of garnishment. A third party in this situation is called a garnishee. Common garnishees are employers who possess wages due a debtor, banks in possession of funds belonging to the debtor, and other third parties in the possession of property of the debtor. Example: Yuming wins a $30,000 judgment against Lisa. Lisa refuses to pay the amount of the judgment to Yuming. Lisa works for E-Communications Company. Yuming obtains a postjudgment writ of garnishment from the court whereby the court orders E-Communications Company to pay 25 percent of Lisa's weekly disposable earnings (after taxes) directly to Yuming. Thus, after receiving this writ of garnishment, E-Communications Company must deduct the amount of the garnishment from Lisa's wages before she is paid and remit this amount to Yuming until the judgment is paid.

What is a reconveyance?

A written document filed by a lender or trustee with the county recorder's office which is proof that a mortgage or note secured by real property has been paid. In terms of the deed of trust, the trustee files this document with the county recorder's office, which transfers title to the real property to the borrower-debtor (obviously, after the loan is repaid). This is also known as a satisfaction of mortgage.

What does the court appointed after an order for relief is granted?

After an order for relief is granted, the court appoints a creditors' committee composed of representatives of the class of unsecured claims. The court may also appoint a committee of secured creditors and a committee of equity holders. Generally, the parties holding the seven largest creditor claims or equity interests are appointed to their requisite committees. Committees may appear at bankruptcy court hearings, participate in the negotiation of a plan of reorganization, assert objections to proposed plans of reorganization, and the like.

What are the characteristics of an administrative law courtroom?

AJL is an employee of an administrative agency. Both the administrative agency and the respondent may be represented by counsel. Witnesses may be examined and cross-examined, evidence may be introduced, objections may be made, and so on. There is no jury.

What are the different types of tangible personal property?

Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost [Revised UCC 9-102(a)(1)].Example: A GPS system that is installed in an automobile. Consumer goods bought or used primarily for personal, family, or household purposes [Revised UCC 9-102(a)(23)].Examples Household televisions, computers, electronic devices, furniture, and furnishings. Equipment bought or used primarily for business [Revised UCC 9-102(a)(33)].Examples: Business trucks, moving cranes, and assembly line equipment. Farm products, including crops, aquatic goods, livestock, and supplies produced in farming operations [Revised UCC 9-102(a)(34)].Examples: Wheat, fish, cattle, milk, apples, and unborn calves. Inventory held for sale or lease, including work in progress and materials [Revised UCC 9-102(a)(48)].Example Raw materials used in production of goods.

What are the different types of intangible personal property?

Accounts that include a right to payment of a monetary obligation for personal or real property sold or leased, services rendered, and policies of insurance [Revised UCC 9-102(a)(1)]. Chattel paper, which is a record that evidences both a monetary obligation and a security interest in specific goods [Revised UCC 9-102(a)(11)]. Tangible chattel paper is inscribed on a tangible medium [Revised UCC 9-102(a)(78)]. Electronic chattel paper is evidenced by information stored in an electronic medium [Revised UCC 9-102(a)(31)]. Deposit accounts [Revised UCC 9-102(a)(29)].Examples Demand, time, savings, passbook, or similar accounts maintained at banks and other financial institutions. General intangibles [Revised UCC 9-102(a)(42)].Examples Patents, copyrights, royalties, and the like. Instruments [Revised UCC 9-102(a)(47)].Examples Negotiable instruments such as checks and notes, stocks, bonds, and other investment securities [Revised UCC 9-102(a)].Revised Article 9 of the UCC does not apply to transactions involving real estate mortgages, landlord's liens, artisan's or mechanic's liens, liens on wages, judicial liens, and the like. These types of liens are usually covered by other laws.

What is the Dodd-Frank Act?

Act that regulates consumer credit and mortgage lending. The act provides civil remedies for borrowers to sue lenders for engaging in deceptive and predatory practices and for violating the provisions of the act. The act provides civil remedies for borrowers to sue lenders for engaging in deceptive and predatory practices and for violating the provisions of the act.

What actions are not stayed?

Actions to recover domestic support obligations (e.g., alimony, child support), the dissolution of a marriage, and child custody cases are not stayed in bankruptcy. Criminal actions against the debtor are also not stayed.

When is actual agency created?

Actual agency is created when a franchisor expressly or implicitly makes a franchisee its agent and is, therefore, liable for the contracts and torts committed by the franchisee while the franchisee is acting within the scope of the agency. Franchisors very seldom appoint franchisees as their agents.

What are local administrative agencies? What is an example of their power?

Administrative agencies created by local governments such as cities, municipalities, and countries to administer local regulatory law. Example: Cities adopt and enforce zoning laws, building codes, and so on.

What are federal administrative agencies? What are examples of this?

Administrative agencies that are created by the executive or legislative branch of the federal government. Examples: The Securities and Exchange Commission (SEC), which regulates the issuance and trading of securities; the Federal Trade Commission (FTC), which enforces federal antitrust and consumer protection laws; and the Federal Communications Commission (FCC), which regulates radio and television broadcasting and telecommunications, are examples of federal agencies.

What does the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 create?

After a decade of lobbying by credit card companies and banks, the 2005 act makes it much more difficult for debtors to escape their debts under federal bankruptcy law. The 2005 act has been criticized by consumer groups for being too "creditor friendly."

What is an area franchise? What is the purpose of an area franchise?

Also known as a master franchise, an area franchise is a franchise in which a franchisor authorizes a franchisee to negotiate and sell franchises on its behalf in distinguished areas. An area franchise is granted for a certain designated geographical area such as a state, a region, or another agreed-on area (for example, southern california or northern california). The purpose of an area franchise is for when a franchisor wants to enter a market in another country or other region that they may not be aware of.

What is Chapter 7 bankruptcy?

Also known as straight bankruptcy, Chapter 7 is a form of bankruptcy in which the debtor's nonexempt property is sold for cash, the cash is distributed to the creditors, and any unpaid debts are discharged. In this type of bankruptcy proceeding, the debtor is permitted to keep a substantial portion of his or her assets (exempt assets). The debtor's future income, even if the debtor becomes rich, cannot be reached to pay the discharged debt. Thus, a debtor would be left to start life new, without the burden of the prepetition debts.

What is the Fair and Accurate Credit Transactions Act?

An act that gives consumers the right to obtain one free credit report once every 12 months from the 3 nationwide credit reporting agencies (Equifax, Experian, TransUnion). Consumers may purchase, for a reasonable fee, their credit score and how the credit score is calculated. The act permits consumers to place fraud alerts on their credit files.

How is an administrative proceeding initiated and what must an administrative agency comply with in adjudicating cases?

An administrative proceeding is initiated when an agency serves a complaint on a party the agency believes has violated a statute or an administrative rule or order. In adjudicating cases, an administrative agency must comply with the Due Process Clause of the U.S. Constitution (and state constitution, where applicable).

What is an administrative subpoena?

An administrative subpoena is issued to a business or person subject to the agency's jurisdiction. The subpoena directs the party to disclose the requested information to the administrative agency. The administrative agency can seek judicial enforcement of the subpoena if the party does not comply with the subpoena.

What is a reaffirmation agreement and when may this occur?

An agreement entered into by a debtor with a creditor prior to discharge, whereby the debtor agrees to pay the creditor a debt that would otherwise be discharged in bankruptcy. Certain requirements must be met for a reaffirmation agreement to be enforced. This might occur if the debtor wishes to repay a debt to a family member, to a bank, or to another party.

What does the Fourth Amendment protect?

An amendment to the U.S. Constitution that protects the rights of the people from unreasonable search and seizure by the government.

What is a guaranty arrangement?

An arrangement in which a third party becomes secondarily liable for the payment of another's debt. The third person is known as the guarantor. The guarantor is obligated to pay the debt if the principal debtor defaults on the debt and the creditor has not been able to collect the debt from the debtor. Example: Ivan, a college student, wants to purchase a new computer, printer, and other electronic equipment on credit from Electronics Retail, Inc. Electronics will not sell the computer and other equipment to Ivan unless he can get someone to guarantee the payment. Ivan asks his roommate, Edward, to guarantee the payment. Edward agrees, and he is placed on the credit agreement as a guarantor. Edward is secondarily liable: If Ivan fails to make the necessary payment, Electronics must first attempt unsuccessfully to recover the payments from Ivan before taking legal action against Edward to recover payment.Ivan, a college student, wants to purchase a new computer, printer, and other electronic equipment on credit from Electronics Retail, Inc. Electronics will not sell the computer and other equipment to Ivan unless he can get someone to guarantee the payment. Ivan asks his roommate, Edward, to guarantee the payment. Edward agrees, and he is placed on the credit agreement as a guarantor. Edward is secondarily liable: If Ivan fails to make the necessary payment, Electronics must first attempt unsuccessfully to recover the payments from Ivan before taking legal action against Edward to recover payment.

What is a surety arrangement?

An arrangement in which a third party promises to be primarily liable with the borrower for the payment of the borrower's debt. The third person/party is known as a surety or co-debtor. A person who acts as a surety is commonly called an accommodation party or co-signer. Example Ivy, a college student, wants to purchase a new BMW automobile. She goes to Auto Dealer and finds exactly the car she wants, and she wants to finance the car. Auto Dealer will not sell the car to Ivy on credit based on her own credit standing. Auto Dealer requires Ivy to find a co-signer on the purchase and credit contract. Ivy asks her mother to co-sign on the agreement. When Ivy's mother signs as a co-signer, she is now a surety. Ivy's mother is equally bound by the contract with Ivy. Ivy's mother is primarily liable with Ivy on the loan. Usually, if Ivy does not pay, Auto Dealer will immediately bring legal action against Ivy's mother for payment. Auto Dealer does not have to sue Ivy first.

What is a franchise?

An arrangement that is established when one party licenses another party to use the franchisor's trade name, trademarks, commercial symbols, patents, copyrights, and other property in the distribution and selling of goods and services. Essentially, franchise refers to both the agreement between the parties and the franchise outlet. Franchisor gives "grant of a franchise and license to use trademarks, service marks, and trade secrets"

What is an attachment?

An attachment is a prejudgement court order that permits the seizure of a debtor's property while the lawsuit is pending. An attachment means that the creditor has an enforceable security interest against the debtor and can satisfy the debt out of the designed collateral.

What must an applicant do to receive a license from an administrative agency?

Applicants must usually submit detailed applications to the appropriate administrative agency. In addition, the agency usually accepts written comments from interested parties and holds hearings on the matter. Courts generally defer to the expertise of administrative agencies in licensing matters.

What is Article 9 (Secured Transactions) of the Uniform Commercial Code (UCC)?

Article 9 (Secured Transactions) governs secured transactions where personal property is used as collateral for a loan or the extension of credit.

When is a debt collector not allowed to contact a debtor?

At any inconvenient time. The FDCPA provides that convenient hours are between 8:00 a.m. and 9:00 p.m., unless this time is otherwise inconvenient for the debtor (e.g., the debtor works a night shift and sleeps during the day). At inconvenient places, such as at a place of worship or social events. At the debtor's place of employment, if the employer objects to such contact. If the debtor is represented by an attorney. If the debtor gives a written notice to the debt collector that he or she refuses to pay the debt or does not want the debt collector to contact him or her again.

What may the secured party do after repossessing the goods? What is the caveat?

The secured party can either (1) retain the collateral, or (2) sell, lease, license, or otherwise dispose of it and satisfy the debt from the proceeds of the sale or disposition. The caveat is that the secured party must act in good faith, with commercial reasonableness, and with reasonable care to preserve the collateral in the party's possession. Example Western Drilling, Inc. purchases a piece of oil-drilling equipment on credit from Halliburton, Inc. Halliburton files a financing statement covering its security interest in the equipment. If Western Drilling fails to make the required payments, Halliburton can foreclose on its lien and repossess the equipment.

What are the dollar limits of Chapter 13 bankruptcy?

Bankruptcy law establishes dollar limits on the secured and unsecured debt that a debtor may have in order to qualify to file for Chapter 13 bankruptcy. Only an individual with regular income alone or with a spouse who owes individually or with a spouse (1) noncontingent, liquidated, unsecured debts of not more than $394,725 and (2) secured debts of not more than $1,184,200 may file a petition for Chapter 13 bankruptcy. Individual debtors who exceed these dollar limits do not qualify for Chapter 13 bankruptcy. Sole proprietorships, because they are owned by individuals, may file for Chapter 13 bankruptcy. The property of a Chapter 13 estate consists of all nonexempt property of the debtor at the commencement of the case and nonexempt property acquired after the commencement of the case but before the case is closed. In addition, the property of the estate includes earnings and future income earned by the debtor after the commencement of the case but before the case is closed. This ensures that prepetition creditors receive payments from the debtor's postpetition earnings and income.

Under bankruptcy law, what is required by a person in bankruptcy to have in assessing the accuracy of the information?

Bankruptcy law requires an attorney certification whereby an attorney who represents a client in bankruptcy must certify the accuracy of the information contained in the bankruptcy petition and the schedules, under penalty of perjury.

What must an individual debtor receive before receiving a discharge in a Chapter 7 or Chapter 13 bankruptcy? Why?

Before an individual debtor receives a discharge in a Chapter 7 or Chapter 13 bankruptcy the debtor must receive postpetition counseling by attending a personal financial management course approved by the U.S. Trustee. This course is designed to provide the debtor with information on responsible use of credit and personal financial planning.

What are the highest federal administrative departments? What are the characteristics of these departments?

Cabinet-level federal departments A. Highest-level federal departments that advise the president and are responsible for enforcing specific laws enacted by Congress. B. They answer directly to the president C. The president appoints cabinet members subject to confirmation by a majority vote of the U.S. Senate D. Cabinet-level departments advise the president and are responsible for enforcing specific laws enacted by Congress E. Examples: The Departments of State, Defense, Homeland Security, Commerce, Agriculture, and Education are cabinet-level federal administrative agencies.

What is not part of the bankruptcy estate?

Certain exempt property is not part of the bankruptcy estate.

What is Chapter 11?

Chapter 11—Reorganization of the Bankruptcy Code provides a method for reorganizing a debtor's financial affairs under the supervision of the bankruptcy court.9 The goal of Chapter 11 is to reorganize the debtor with a new capital structure so that the debtor emerges from bankruptcy as a viable concern. This option, which is referred to as reorganization bankruptcy, is often in the best interests of debtors and creditors. Chapter 11 is available to partnerships, corporations, limited liability companies, and other business entities. Most of the Chapter 11 proceedings are filed by corporations and other businesses that want to reorganize their capital structure by receiving discharge of a portion of their debts and obtaining relief from burdensome contracts and to emerge from bankruptcy as going concerns. Chapter 11 is also filed by wealthy individual debtors who do not qualify for Chapter 7 or Chapter 13 bankruptcy.

What is Chapter 13?

Chapter 13—Adjustment of Debts of an Individual with Regular Income is a rehabilitation form of bankruptcy for individuals.7 Chapter 13 permits a qualified debtor to propose a plan to pay all or a portion of the debts owed in installments over a specified period of time, pursuant to the requirements of Chapter 13. The bankruptcy court supervises the debtor's plan for the payment. The debtor has several advantages under Chapter 13. These include avoiding the stigma of Chapter 7 liquidation, retaining more property than is exempt under Chapter 7, and incurring fewer expenses than in a Chapter 7 proceeding. The creditors have advantages, too: They may recover a greater percentage of the debts owed them than they would recover under a Chapter 7 bankruptcy. Chapter 13 petitions are usually filed by individual debtors who do not qualify for Chapter 7 liquidation bankruptcy and by homeowners who want to protect nonexempt equity in their residence. Chapter 13 enables debtors to catch up on secured credit loans, such as home mortgages, and avoid repossession and foreclosure.

What does Chapter 7 allow a debtor to do? Additionally, what does Chapter 7 do to the debtor's assets and what does Chapter 7 not include?

Chapter 7 allows a debtor to make a clean break from his financial past, but at a steep price: prompt liquidation of the debtor's assets. When a debtor files a Chapter 7 petition, his assets, with specified exemptions, are immediately transferred to a bankruptcy estate. Crucially, however, a Chapter 7 estate does not include the wages a debtor earns or the assets he acquires after the bankruptcy filing. Thus, while a Chapter 7 debtor must forfeit virtually all his prepetition property, he is able to make a "fresh start" by shielding from creditors his post-petition earnings and acquisitions. Example Annabelle finds herself overburdened with debt, particularly credit card debt. Assume that Annabelle qualifies for Chapter 7 bankruptcy. When she files for Chapter 7 bankruptcy, her unsecured credit is $100,000. Annabelle has few assets, and most of those are exempt property (e.g., her clothes, some furniture). Her nonexempt property is $10,000, which will be sold to raise cash. The $10,000 in cash will be distributed to her debtors on a pro rata basis—that is, each creditor will receive 10 cents for every dollar of debt owed. The other $90,000 is discharged—that is, the creditors must absorb this loss. Annabelle is free from this debt forever. She is given a fresh start, and her future earnings are hers.

What debts are not dischargeable in bankruptcy?

Claims for income or gross receipts taxes owed to federal, state, or local governments accrued within 3 years prior to the filing of the petition for bankruptcy Certain fines and penalties payable to federal, state, and local governmental units Claims based on the debtor's liability for causing willful or malicious injury to a person or property Claims arising from fraud, larceny, or embezzlement by the debtor while acting in a fiduciary capacity Domestic support obligations and alimony, maintenance, and child support payments resulting from a divorce decree or separation agreement Unscheduled claims Claims based on a consumer-debtor's purchase of luxury goods or services of more than $675 from a single creditor on or within 90 days of the order for relief Cash advances of more than $950 obtained by a consumer-debtor by use of a revolving line of credit or credit cards on or within 70 days of the order for relief Judgements and consent decrees against the debtor for liability incurred because of the debtor's operation of a motor vehicle, a vessel, or an aircraft while legally intoxicated A debt that would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child the debtor An amount owed to a pension, profit-sharing, or stock bonus plan and loans owed to employee retirement plans

What are the two main provisions of the Dodd-Frank Act?

Consumer Financial Protection Act of 2010. Title X of the Dodd-Frank Act, which is titled the Consumer Financial Protection Act of 2010, is designed to increase relevant disclosure regarding consumer financial products and services and to eliminate deceptive and abusive loan practices. The act is also designed to prevent hidden fees and charges. The new law requires disclosure of relevant information to consumers in plain language that permits consumers to understand the costs, benefits, and risks associated with consumer financial products and services. Mortgage Reform and Anti-Predatory Lending Act. Title XIV of the Dodd-Frank Act, which is titled the Mortgage Reform and Anti-Predatory Lending Act, is designed to eliminate many abusive loan practices and mandates new duties and disclosure requirements for mortgage lenders. The act requires that mortgage originators and lenders verify the assets and income of prospective borrowers, their credit history, employment status, debt-to-income ratio, and other relevant factors when deciding to extend credit. The act puts the burden on lenders to verify that a borrower can afford to repay the loan for which he or she has applied.

What is the doctrine of apparent agency?

Court's reasoning for which the principal/franchisor assumes liability for its franchisee's tortious conduct.

What is unsecured credit?

Credit that does not require any security (collateral) to protect the payment of the debt.

What is secured credit?

Credit that requires security (collateral) to secure payment of the loan. Also, the creditor who has a security interest in collateral is called a secured creditor, or secured party.

What is the relationship of collective bargaining agreements with labor unions and Chapter 11?

Debtors that file for Chapter 11 reorganization sometimes have collective bargaining agreements with labor unions that require the payment of agreed-on wages and other benefits to union member-employees for some agreed-on period in the future. Debtors also often have contracts to pay union and nonunion retired employees and their dependents' medical, surgical, hospitalization, dental, and death benefits (retiree benefits). In a Chapter 11 case, union members and union retirees are represented by the responsible labor union. The court appoints a committee to represent nonunion retirees. The debtor and the representatives of the union members and retirees can voluntarily agree to modification of the union collective bargaining agreement and retiree benefits. If such an agreement is not reached, the debtor must confer in good faith with the union and retirees' representative, but if a settlement cannot be reached, the debtor can petition the bankruptcy court to reject the union agreement or to modify retiree benefits. The court can reject a union contract or modify retirees' benefits if the court finds that the "balance of equities" favors rejection or modification and the rejection or modification is necessary to the debtor's reorganization. In its bankruptcy reorganization, the debtor usually proposes to reduce its unsecured debt so that it can come out of bankruptcy with fewer debts to pay than when it filed for bankruptcy. The bankruptcy court permits the debtor to discharge the amount of unsecured credit that would make its plan of reorganization feasible. Unsecured credit is discharged on a pro rata basis. Example Big Oil Company has $100 million in secured debts (e.g., real estate mortgages, personal property secured transactions) and $100 million in unsecured credit when it files for Chapter 11 bankruptcy. In its plan of reorganization, Big Oil Company proposes to eliminate 60 percent—$60 million—of its unsecured credit. If the court approves, then Big Oil will emerge from bankruptcy owing only $40 million of prepetition unsecured debt. The other $60 million is discharged, and the creditors can never recover these debts in the future.

What is disposable income?

Disposable income is defined as current monthly income less amounts reasonably necessary to be spent for the maintenance or support of the debtor and the debtor's dependents. Expenses include amounts necessary to pay domestic support obligations and charitable donations that do not exceed 15 percent of the debtor's gross income for the year the charitable donations are made. If a debtor earns more than the median income of the state, expenses are determined by the objective Internal Revenue Service (IRS) standards.

What is the main difference between the distributorship franchise and processing plant franchise?

Distributorship franchises do not produce the product. They sell what's given to them. Processing plant franchises produce/replicate the process given by the franchisor and then sell the product.

What documents are exempt from the Freedom of Information Act?

Documents classified by the president to be in the interests of national security Documents that are statutorily prohibited from the disclosure Records whose disclosure would interfere with law enforcement proceedings Medical, personnel, and similar files Documents containing trade secrets or other confidential or privileged information. Decisions by federal administrative agencies not to publicly disclose documents requested under the act are subject to judicial review in the proper U.S. District Court.

What is a homestead exemption? What is the amount the federal Bankruptcy Code permits homeowners to claim a homestead exemption?

Equity in a debtor's home that the debtor is permitted to retain in bankruptcy. Homeowners may claim a homestead exemption of $23,675 in their principal residence.

What was the reasoning/conclusion made in Old Republic National Title Company v. Fifth Third Bank?

Essentially, the priority of the security interests on the home were by the recording date.. In other words, the lien priority is determined by the time of filing; thus, the "recording statute sets forth the general rule that the first mortgage recorded shall have preference over subsequently recorded mortgages."

What must the secured party file when a secured consumer pays its debt?

The secured party must file a termination statement with each filing officer with whom the financing statement was filed. A termination statement is a document filed by a secured party that ends a secured interest because the debt has been paid. In addition, the termination statement must be filed within one month after the debt is paid or 20 days after receipt of the debtor's written demand, whichever occurs first. If the affected secured party fails to file or send the termination statement as required, the secured party is liable for any other losses caused to the debtor.

How may a franchise agreement be terminated?

Franchise agreements may be terminated by a franchisor to terminate the franchise "for cause." Example: The continued failure of a franchisee to pay franchise fees or meet legitimate quality-control standards would be deemed just cause.

What is the liability of franchisors?

Franchisors are liable for their own contracts and torts

What happened with the General Motors Bankruptcy?

General Motors Corporation (GM) originally started in 1908 and grew to be the world's largest corporation. The 1950s through the 1980s were profitable times for GM as it expanded operations in the United States and worldwide. Beginning in the 1970s, however, foreign competition began to make inroads into the U.S. automobile market. By the end of the first decade of the twenty-first century, GM was losing billions of dollars each year. This led GM to consider a once inconceivable solution: declare bankruptcy. Luckily for GM, the U.S. federal government decided that GM was "too big to fail." The federal government thus provided GM with a bailout using taxpayers' money. In 2009, GM filed Chapter 11 bankruptcy and reorganized its financial structure and operations. At the time of the bankruptcy filing, GM had liabilities of $172 billion and assets of $82 billion. The GM bankruptcy was one of the largest bankruptcies in U.S. history. The results of GM's bankruptcy were the following: The U.S. government provided more than $50 billion of taxpayer bailout money to GM. In exchange for the bailout, the federal government—the U.S. taxpayers—received 60 percent of the new GM stock. The Canadian federal and provincial governments, which provided more than $8 billion of bailout money, received 12 percent of GM stock. The United Auto Workers (UAW), a labor union that represents the majority of GM's nonmanagement workforce, agreed to concessions of lower wages and benefits in exchange for a 17.5 percent ownership interest in GM. GM bondholders, who held more than $27 billion of GM bonds, were converted from bondholders to stockholders and given stock worth only a fraction of their original investment. GM shed more than two-thirds of its debt, reducing its prebankruptcy debt of $54 billion to only $17 billion. In exchange, the unsecured creditors were given 10 percent ownership of GM. GM's shareholders at the time of bankruptcy had the value of their investments wiped out. GM closed dozens of manufacturing and assembly plants and other operations in the United States. GM shed more than 20,000 blue-collar jobs through buyouts, early-retirement offers, and layoffs. After the bankruptcy, GM employed approximately 40,000 hourly workers in the United States. GM canceled more than 2,000 of its 6,000 dealership licenses. GM eliminated its Pontiac, Saturn, Hummer, and Saab brand names and pared down to four brand-name vehicles—Chevrolet, Cadillac, Buick, and GMC. In addition to the bailout money, GM received $15 billion of tax benefits from the federal government. Subsequently, GM issued stock in a public offering, and the federal government sold its stock in GM. In total, including unpaid bailout money and the tax benefits given to GM, the American taxpayers lost approximately $35 billion on the GM bailout. In re General Motors Corporation, Chapter 11 Case No. 09-50026 (REG) (United States Bankruptcy Court for the Southern District of New York)

What is general government regulation?

Laws that regulate businesses and industries collectively; most of the industries and businesses in the United States are subject to these laws (e.g., antidiscrimination laws). A. These laws do regulate a specific industry but apply to all industries and businesses except those that are specifically exempt from certain regulations. B. Example: The National Labor Relations Board (NLRB), a federal administrative agency, is empowered to regulate the formation and operation of labor unions in most industries and businesses in the United States. The federal Occupational Health and Safety Administration (OSHA) is authorized to regulate workplace safety for most industries and businesses in the country. The U.S. Equal Employment Opportunity Commission (EEOC) enforces equal opportunity in employment laws that cover most workers in the United States.

What happened in the Husky International Electronics, Inc. case?

Husky International Electronics, Inc. (Husky) sold electronic components to Chrysalis Manufacturing Corp. (Chrysalis), on credit, which incurred a debt to Husky of $163,999. Daniel Lee Ritz, Jr., owned 30 percent of Chrysalis' common stock and served as a director of the company. During a one-year period, Ritz drained Chrysalis of assets it could have used to pay creditors of Chrysalis like Husky by transferring large sums of Chrysalis' funds to other entities Ritz controlled. Ritz transferred $52,600 to CapNet Risk Management, Inc., a company he owned in full; $121,831 to CapNet Securities Corp., a company in which he owned an 85 percent interest; $99,386 to Dynalyst Manufacturing Corp., a company in which he owned a 25 percent interest; and additional transfers to other companies he controlled. When Chrysalis did not pay the $163,999 debt it owed Husky, Husky filed a lawsuit against Ritz seeking to hold him personally responsible for the debt. Husky argued that Ritz's intercompany-transfer scheme was actual fraud under Texas law that allows creditors to hold shareholders responsible for corporate debt. Ritz filed for Chapter 7 bankruptcy. In that proceeding, Husky argued that Ritz could not discharge the debt in bankruptcy because the intercompany-transfer scheme constituted actual fraud, which was not dischargeable in bankruptcy. The U.S. district court held that Ritz was personally liable to Husky for the debt but that the debt could be discharged in bankruptcy. U.S. court of appeals affirmed the decision that the debt could be discharged in bankruptcy. Husky appealed to the U.S. Supreme Court. Issue Is Ritz's debt to Husky dischargeable in bankruptcy? Language of the U.S. Supreme Court The Bankruptcy Code prohibits debtors from discharging debts obtained by false pretences, a false representation, or actual fraud. The historical meaning of actual fraud provides even stronger evidence that the phrase has long encompassed the kind of conduct alleged to have occurred here: a transfer scheme designed to hinder the collection of debt. From the beginning of English bankruptcy practice, courts and legislatures have used the term fraud to describe a debtor's transfer of assets that, like Ritz's scheme, impairs a creditor's ability to collect the debt. Decision The U.S. Supreme Court held that the Bankruptcy Code exempted from discharge false misrepresentation schemes. The Supreme Court reversed the decision of the court of appeals and remanded the case for final disposition.

What is an Artisan's Lien?

If a worker in the ordinary course of business furnishes services or materials to someone with respect to goods and receives a lien on the goods by statute, this artisan's lien prevails over all other security interests in the goods unless a statutory lien provides otherwise. Thus, such liens are often called super-priority liens. An artisan's lien is possessory; that is, the artisan must be in possession of the property to effect an artisan's lien. Example Janice borrows money from First Bank to purchase an automobile. First Bank has a purchase money security interest in the car and files a financing statement. The automobile is involved in an accident, and Janice takes the car to Joe's Repair Shop (Joe's) to be repaired. Joe's retains an artisan's lien on the car for the amount of the repair work. When the repair work is completed, Janice refuses to pay. She also defaults on her payments to First Bank. If the car is sold to satisfy the liens, the artisan's lien is paid in full from the proceeds before First Bank is paid anything.

Which acts bar discharge of unsatisfied debts?

If the debtor Made false representations about his or her financial position when obtaining an extension of credit. Transferred, concealed, removed, or destroyed property of the estate with the intent to hinder, delay or defraud creditors within one year before the date of the filing of the petition Falsified, destroyed, or concealed records of his or her financial condition Failed to account for any assets Failed to submit to questioning at the meeting of the creditors (unless excused). Failed to complete an instructional course concerning personal financial management (unless excused).

What may a creditor do if the sale of collateral is insufficient to repay the loan plus interest?

If the sale of the collateral is insufficient to repay the loan plus interest, the creditor may bring a lawsuit against the debtor to recover a deficiency judgement for the difference. Example: Sarah purchases an automobile from a car dealership. She borrows part of the purchase price from a lender. The lender requires Sarah to give it a security interest in the automobile to secure the loan. This is a secured credit transaction with the automobile being collateral for the loan. If Sarah defaults and fails to make the required payments, the lender can repossess the automobile.

What is specific government regulation?

Laws that regulate specific industries (e.g., banking). A. An industry is subject to administrative laws that are adopted to regulate that industry B. Industry-specific administrative agencies are created to administer those laws C. Examples: The Federal Communications Commission (FCC) issues licenses and regulates the operation of television and radio stations. The Federal Aviation Administration (FAA) regulates the operation of commercial airlines. The federal Office of the Comptroller of the Currency regulates the licensing and operation of national banks.

What has been the problem with disclosing information in franchise agreements?

In the past, some franchisors have given false information to prospective franchisees about how successful they will be if they become a franchisee. These disclosures or nondisclosures constituted fraud.

What must individuals filing for bankruptcy receive?

Individuals filing for bankruptcy must receive prepetition counseling within 180 days prior to filing a petition for bankruptcy. This includes counseling on types of credit, the use of credit, and budget analysis. The counseling is to be provided by not-for-profit credit counseling agencies approved by the U.S. Trustee.

What information must be included by the UFOC and state laws?

Information that must be disclosed includes a 1. description of the franchisor's business 2. balance sheets and income statements of the franchisor for the preceding 3 years 3. material terms of the franchise agreement 4. Any restrictions on the franchisee's territory 5. Reasons permitted for the termination of the franchise 6. Other relevant information

What are the federal exemptions from the Bankruptcy Estate? (following debts not being dischargeable)?

Interest up to $23,675 in equity in property used as a residence and burial plots (called the "homestead exemption") Interest up to $3,775 in value in one motor vehicle Interest up to $600 per item in household goods and furnishings, wearing apparel, appliances, books, animals, crops, or musical instruments, up to an aggregate value of $12,625 for all items Interest in jewelry up to $1,600 Interest in any property the debtor chooses (including cash) up to $1,250, plus up to $12,625 of any unused portion of the homestead exemption Interest up to $2,375 in value in implements, tools, or professional books used in the debtor's trade Any unmatured life insurance policy owned by the debtor Professionally prescribed health aids Many government benefits, regardless of value, including Social Security benefits, welfare benefits, unemployment compensation, veteran's benefits, disability benefits, and public assistance benefits Certain rights to receive income, including domestic support payments (e.g., alimony, child support), certain pension benefits, profit sharing, and annuity payments Interests in wrongful death benefits and life insurance proceeds to the extent necessary to support the debtor or his or her dependents Personal injury awards up to $23,675 Retirement funds that are in a fund or an account that is exempt from taxation under the Internal Revenue Code, except that an exemption for individual retirement accounts (IRAs) shall not exceed $1,283,025 for an individual unless the interests of justice require this amount to be increased

What is the judicial authority of an administrative agency?

It is the power of an administrative agency to adjudicate cases through an administrative proceeding often conducted by an administrative law judge (ALJ).

What does Article I, Section 8, Clause 4 of the U.S. Constitution state?

It states, "The Congress shall have the power ... to establish ... uniform laws on the subject of bankruptcies throughout the United States." This reminds us that all Bankruptcy law is exclusively federal law; there are no state bankruptcy laws.

What is the FTC franchise notice?

It's the statement required by the FTC to be typed in at least 12-point boldface type on the cover of a franchisor's required disclosure statement to prospective franchisees.

What are the two tests for seeing if a debtor qualifies for Chapter 7 liquidation bankruptcy?

Median Income Test: The first step in determining whether a debtor qualifies for Chapter 7 relief is to apply the median income test. A state's median income is defined as the income where half of the state's families of a specified size have incomes below that figure. The median income for a family of two will differ from the median income for a family of 3 and so on. If a family has median family income equal or below the state's median family income for the size of the debtor's family the debtor qualifies for Chapter 7 bankruptcy. The debtor may proceed with the Chapter 7 case and be granted discharge of unsecured debts. Thus, for debtors at or below the state median income, the 2005 act makes no changes in the ability to obtain Chapter 7 relief. Example: Assume that a state's median income for a family of four is $75,000. If the median income of the debtor's family of four is $60,000, the debtor qualifies for Chapter 7 bankruptcy relief. If a family has median family income that is higher than the state's median family income for the size of the debtor's family, the debtor does not automatically qualify for a Chapter 7 bankruptcy. A second test, the means test, is applied to see if the debtor qualifies for Chapter 7 bankruptcy. The means test is a calculation that establishes a bright-line test to determine whether the debtor has sufficient disposable income to pay prepetition debts out of post petition income. Disposable income is determined by taking the debtor's actual income and subtracting expenses for a typical family the same size as the debtor's family. Income is the actual income of the debtor. However, expenses are determined by using pre-established government tables and not the actual expenses of the family. A complicated formula is used to calculate the debtor's disposable income and thus determine whether the debtor qualifies for Chapter 7 bankruptcy. If, because of the application of the means test, a debtor is determined to have a sufficient disposable income as determined by bankruptcy law, the debtor does not qualify for Chapter 7 bankruptcy. The petition for Chapter 7 bankruptcy will be denied by the bankruptcy court. Usually, these debtors will file for Chapter 13 bankruptcy (discussed later in this chapter). If, however, using the means test calculation a debtor is determined to have an insufficient amount of disposable income as determined by bankruptcy law, the debtor qualifies for Chapter 7 bankruptcy. These debtors may be granted Chapter 7 discharge of debts. Thus, some of the debtors that have income above the state's median income for the debtor's size of family will qualify for Chapter 7, and some will not.

How do franchisors allow for franchisees to use their trademarks, trade names, and service marks?

Most franchisors license the use of their trade names, trademarks, and service marks to their franchisees. Trade name: The name a business uses for advertising and sales purpose. Sometimes referred to as a "fictitious" or "doing business as (DBA)" title. For example, "McDonald's" may be the trade name, but the legal name is "McDonald's Corporation." Trademark: A distinctive mark, symbol, name, word, motto, or device that identifies the goods of a particular business. A brand name. Service mark: A mark that distinguishes the services of the holder from those of its competitors.

What are the procedures that a federal administrative agency must follow when it proposes to adopt a substantive rule?

Publish a general notice of the proposed rule making in the Federal Register Must include the time, place, and nature of the rule-making proceeding Must include the legal authority pursuant to which the rule is proposed Must include the terms or substance of the proposed rule or a description of the subject and issues involved. Give interested persons an opportunity to participate in the rule-making process. This may involve oral hearings. Review all written and oral comments. Then the agency announces its final rule in the matter. This procedure is often referred to as notice-and-comment rulemaking, or informal rulemaking. Require, in some instances, formal rulemaking. Here, the agency must conduct a trial-like hearing at which the parties may present evidence, engage in cross-examination, present rebuttal evidence, and the like.

What do most states have in place for franchisors?

Most states have enacted franchise laws that require franchisors to register and deliver disclosure documents to prospective franchisees.

What kind of financing statements do most states require to be filed with the county clerk?

Most states require financing statements covering farm equipment, farm products, accounts, and consumer goods to be filed with the county clerk.

What is necessary for a secured creditor who repossesses the collateral and decides to retain the collateral in satisfaction of the debtor's obligation?

Notice of the proposal to retain the collateral must be sent to the debtor unless the debtor has signed a written statement renouncing this right. In the case of consumer goods, no other notice needs be given.

What is the Truth in Lending Act (TILA)?

One of the first federal consumer protection statutes that requires creditors to make certain disclosures to debtors in consumer transactions (e.g. retail installment sales, automobile loans) and real estate loans on the debtor's principal dwelling. The TILA covers only creditors that regularly (1) extend credit for goods or services to consumers or (2) arrange such credit in the ordinary course of their business. (Consumer credit is defined as credit extended to natural persons for personal, family, or household purposes.)

What is the statutory period of redemption?

The specified period of time during which a state allows a mortgagor to redeem real property after foreclosure on the property because of default on a loan

What are the two situations a secured creditor may face in a Chapter 7 liquidation bankruptcy?

Oversecured secured creditor: If the value of the collateral securing the secured loan exceeds the secured interest, the secured creditor is an oversecured creditor. In this case, the property is usually sold, and the secured creditor is paid the amount of its secured interest (i.e., principal and accrued interest) and reasonable fees and costs resulting from the debtor's default.. The excess becomes available to satisfy the claims of the debtor's unsecured creditors. Undersecured secured creditor: If the value of the collateral securing the secured loan is less than the secured interest, the secured creditor is an undersecured creditor. In this case, the property is usually awarded to the secured creditor. The secured creditor then becomes an unsecured creditor as to the amount still owed to it, which consists of unpaid principal and interest and reasonable fees and costs of the debtor's default.

What is an automatic stay?

The suspension of certain legal actions by creditors against a debtor of the debtor's property. The filing of a voluntary or an involuntary petition automatically stays-that is, suspends-certain legal actions by creditors against the debtor or the debtor's property.

What is procedural administrative law? What are examples of Procedural Law?

Procedural administrative law is law that establishes the procedures that must be followed by administrative agencies while enforcing substantive laws. Congress created the federal Environmental Protection Agency (EPA) to enforce federal environmental laws that protect the environment. This is an example of substantive law-laws to protect the environment. In enforcing these laws, the EPA must follow certain established procedural rules (e.g., notice, hearing).

What is an after-acquired property?

Property that a debtor acquires after a security agreement is executed. Many security agreements contain a clause that gives the secured party a secured interest in after-acquired property. Example: Manufacturing Corporation borrows $100,000 from First Bank and gives the bank a security interest in both its current and after-acquired inventory. If Manufacturing Corporation defaults on its loan to First Bank, the bank can claim any available original inventory as well as enough after-acquired inventory to satisfy its secured claim.

What is 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 creditors cannot claim the property.

What are the definitions for electronic commerce in Article 9's rules for the creation, filing, and enforcement of electronic secured transactions?

Record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form [Revised UCC 9-102(a)(69)]. The term record is now used in many of the provisions of Revised Article 9 in place of the term writing, further recognizing the importance of electronic commerce. Electronic chattel paper means chattel paper evidenced by a record or records consisting of information stored in an electronic medium [Revised UCC 9-102(a)(31)]. This includes records initially created and executed in electronic form and tangible writings that are converted to electronic form (e.g., electronic images created from a signed writing). Financing statement means a record composed of an initial financing statement and any filed record related to the initial financing statement [Revised UCC 9-102(a)(39)]. Thus, financing statements may be in electronic form and filed and stored as electronic records. Most states permit or require the filing of electronic financing statements, or e-financing statements.

What is Regulation Z?

Regulation Z is an administrative agency regulation that sets forth detailed rules for compliance with TILA. The TILA and Regulation Z require the creditor to disclose the following information to the consumer-debtor: Cash-price of the product or service, down payment and trade-in allowance, unpaid cash price, finance charge (including interest, points, and other fees paid for the extension of credit), Annual percentage rate (APR) of the finance charges, charges not included in the financial charge (such as appraisal fees), total dollar amount financed, date the finance charge begins to accrue, number and amounts and due dates of payments, description of any security interest, penalties to be assessed for delinquent payments and late charges, prepayment penalties, and comparative costs of credits (optional). These uniform disclosure are intended to help consumers shop for the best credit terms.

What are administrative laws often referred to as?

Regulatory statutes Statutes such as environmental laws, securities laws, and antitrust laws that provide for criminal violations and penalties → definition provided but just remember to refer to them as administrative law

What is the addition of the revised Article 9 (Secured Transactions)?

Revised Article 9 includes modern and efficient rules that govern secured transactions in personal property. Revised Article 9 contains many new provisions that recognize the importance of electronic commerce, including rules for the creation, filing, and enforcement of electronic secured transactions.

What is informal rulemaking?

Rulemaking by an administrative agency where it notifies the public of a proposed rule, permits interested persons to comment on the proposed rule, and possibly holds an informal hearing before deciding on whether to adopt the proposed rule.

What may States do if they are permitted by the Bankruptcy Code to enact their own exemptions?

States that do so may (1) give debtors the option of choosing between federal and state exemptions or (2) require debtors to follow state law.

What did the 1978 bankruptcy law overhaul cause?

The 1978 law was structured to make it easier for debtors to be relieved of much of their debt by declaring bankruptcy; it was deemed "debtor friendly" because it allowed many debtors to escape their unsecured debts.

What may be required to be paid as part of the completion of bankruptcy estates of Chapter 12 (family farmer or family fisherman), Chapter 11 (reorganization), and Chapter 13 (adjustment of debts) cases?

The 2005 act provides that a certain amount of postpetition earnings from services performed by the debtor that are earned for up to 5 years after the order for relief may be required to be paid as part of the completion of Chapter 12 (family farmer or family fisherman), Chapter 11 (reorganization), and Chapter 13 (adjustment for debts) cases.

What does the APA establish, require and provide?

The APA establishes notice requirements of actions the federal agency plans on taking. The APA also establishes how rules and regulations can be adopted by federal administrative agencies which includes providing notice of proposed rulemaking, granting a time period for receiving comments from the public regarding the proposed rulemaking, and holding hearings to take evidence. Additionally, the APA establishes notice and hearing requirements and rules for conducting agency adjunctive actions, such as actions to take away certain parties' licenses (e.g, a securities broker's licenses) It requires hearings to be held in most cases, and it requires certain procedural safeguards and protocols to be followed at these proceedings. It also provides a procedure for receiving evidence and hearing requests for the granting of federal licenses (e.g., to operate a national bank).

What is the small business Chapter 11 bankruptcy?

The Bankruptcy Code permits a "small business," defined as one with total debts of less than $2,566,050, to use a simplified, fast-track form of Chapter 11 reorganization bankruptcy. Small business bankruptcy provides an efficient and cost-saving method for small businesses to reorganize under Chapter 11.

What are abusive homestead exemptions?

The Bankruptcy Code's federal homestead exemption is $23,675. Homestead exemptions under many state laws are usually higher than the federal exemption. Most states exempt between $20,000 and $100,000 of equity in a debtor's principal residence from the bankruptcy estate. Florida and Texas have no dollar amount limit on their homestead exemptions, although they do limit the size of the real property that qualifies for the homestead exemption. These states have been known as "debtor's havens" for wealthy debtors who file for bankruptcy. Prior to the 2005 act, many wealthy debtors from other states moved their money into principal residences in Florida and Texas to benefit from these generous homestead exemptions. Other states that allow debtors to protect an unlimited amount of equity from claims of creditors are Iowa, Kansas, and South Dakota. The 2005 act limits abusive homestead exemptions. It provides that a debtor may not exempt an amount greater than $160,375 if the property was acquired by the debtor within 40 months before the filing of the petition for bankruptcy.

What does the Credit CARD Act not do?

The Credit CARD Act does not limit how high an interest rate can be charged on a credit card. The act does not apply to commercial or business credit cards. Violations of the act are subject to criminal prosecution and civil lawsuits.

What is the Credit CARD Act?

The Credit Card Accountability Responsibility and Disclosure Act. Requires that the terms of the credit card agreement must be written in plain English and in no less than 12-point font (thus avoiding "legalese" and fine-print agreements). Credit cards cannot be issued to anyone under the age of 21 (used to be 18) unless they have a co-signer (e.g., parent) or they can prove they have the means to pay credit card expenses. Requires that payments above the minimum payment be applied to pay higher-interest balances first (previously, issuers applied payments to lower-interest balances first). The minimum payment can be applied to pay off lowest-interest-rate balances first. Prevents card companies from retroactively increasing interest rates on existing balances. Provides that if cardholders cancel a card, they have the right to pay off existing balances at the existing interest rate and existing payment schedule (e.g., current minimum monthly payment). Provides that cardholders who have been subject to an interest rate increase because of default but then pay on time for 6 months must have the interest rate returned to the rate prior to the rate increase. Prohibits the application of the universal default rule from being applied retroactively to existing balances that the cardholders have on their credit cards. The universal default rule (which was used extensively by credit card companies prior to the act) allowed all credit card companies with whom a cardholder had a credit card to raise the interest rate on the card, including on the existing balances, if the cardholder was late in making a payment to any credit card company. The act does not eliminate the universal default rule; it allows credit card companies to apply the rule only to future balances. Requires card companies to place a notice on each billing statement that notifies the cardholder how long it would take to pay off the existing balance plus interest if the cardholder were to make minimum payments on the card. Requires card companies to place a notice on each billing statement that notifies the cardholder what monthly payment would be necessary for the cardholder to pay off the balance plus interest in 36 months.

Which services does the DHS provide for?

The DHS provides services in the following critical areas: (1) border and transportation security, including protecting airports, seaports, and borders and providing immigration and visa processing; (2) chemical, biological, radiological, and nuclear countermeasures, including metering the air for biological agents and developing vaccines and treatments for biological agents; (3) information analysis and infrastructure protection, including protecting communications systems, power grids, transportation networks, telecommunications, and cyber systems; and (4) emergency preparedness and response to terrorist incidents, including training first responders and coordinating government disaster relief.

What does the FDCPA limit and what may a debtor do if the debt collector violate the FDCPA?

The FDCPA limits the contact that a debt collector may have with third persons other than the debtor's spouse or parents. Such contact is strictly limited. Unless the court has given its approval, third parties can be consulted only for the purpose of locating a debtor, and a third party can be contacted only once. A debt collector may not inform a third person that a consumer owes a debt that is in the process of collection. A debtor may bring a civil action against a debt collector for intentionally violating the FDCPA.

What does the FTC exclude?

The FTC does not require the registration of the disclosed document with the FTC prior to its use.

What is the FTC franchise rule?

The FTC franchise rule is a rule set out by the Federal Trade Commission that requires franchisors to make full presale disclosures to prospective franchisees. This is to curb possible fraud from disclosures or nondisclosures that give false information about how successful prospective franchisees will be if they do enter a franchise agreement.

What is the FTC?

The FTC is the Federal Trade Commission. The FTC is a federal administrative agency empowered to regulate franchising.

Does the debtor remain in possession of property in a Chapter 13?

The debtor remains in possession of all of the property of the estate during the completion of the plan except as otherwise provided by the plan. If the debtor is self-employed, the debtor may continue to operate the business. Alternatively, the court may order that a trustee operate the business, if necessary.

What is needed for a Chapter 13 plan of payment?

The court can confirm a Chapter 13 plan of payment if the prior requirements are met and if (1) the plan was proposed in good faith, (2) the plan passes the feasibility test (e.g., the debtor must be able to make the proposed payments), (3) the plan is in the best interests of the creditors (i.e., the present value of the payments must equal or exceed the amount that the creditors would receive in a Chapter 7 liquidation proceeding), (4) the debtor has paid all domestic support obligations owed, and (5) the debtor has filed all applicable federal, state, and local tax returns. The debtor must begin making the planned installment payments to the trustee in equal monthly installments. The trustee is responsible for remitting these payments to the creditors. The trustee is paid for administering the plan.

What is a Chapter 13 discharge?

The court grants an order discharging the debtor from all unpaid unsecured debts covered by the plan after all the payments required under the plan are completed (which could be up to 3 years or up to 5 years). This is called a Chapter 13 discharge. The debtor must certify that all domestic support payments have been paid before discharge is granted. Most unpaid taxes are not discharged.

What must the court do within a reasonable time after it grants an order for relief (not less than 10 days or more than 30 days)?

The court must call a meeting of the creditors (also called the first meeting of the creditors). The bankruptcy judge cannot attend the meeting. The debtor must appear and submit to questioning, under oath, by creditors. Creditors may ask questions regarding the debtor's financial affairs, disposition of property prior to bankruptcy, possible concealment of assets, and similar matters. The debtor may have an attorney present at this meeting.

How may the court void a transfer or an obligation of the debtor's property made by the debtor within 2 years prior to filing a petition for bankruptcy?

The court must find that (1) the transfer was made or the obligation was incurred by the debtor with the actual intent to hinder, delay, or defraud a creditor or (2) the debtor received less than a reasonable equivalent in value. Example: Kathy owes her unsecured creditors $100,000. On February 9, Kathy knows that she is insolvent. Kathy owns a Mercedes-Benz automobile that is worth $55,000. On February 9, Kathy sells her Mercedes-Benz automobile to her friend, Wei, for $30,000. Wei is a bona fide purchaser who does not know of Kathy's financial situation. On July 1, Kathy files for Chapter 7 liquidation bankruptcy while still owing the $100,000 to her unsecured creditors. The court can void Kathy's sale of her automobile to Wei as a fraudulent transfer because it occurred within 2 years of the petition and Kathy received less than a reasonable equivalent in value. Because Wei was a bona fide purchaser, the court must repay Wei the purchase price of $30,000 to recover the automobile from her.

What is a creditor allowed to do after obtaining a judgement against the debtor? What may a court also do?

The creditor can petition the court for a post judgement order to obtain property in possession of the debtor or a third party to satisfy the judgement. On some occasions, a court can issue a prejudgement order to tie up property of the debtor during the court proceedings.

What is an unsecured creditor?

The creditor in a credit transaction where the debtor does give security (collateral) to protect the payment of the debt.

What happens if the debtor fails to make the payments on a loan?

The creditor may bring legal action and obtain a judgement against the debtor.

What does the creditor rely on the debtor to do when there is unsecured credit?

The creditor relies on the debtor's promise to repay the principal (plus any interest) when it is due.

When does a debtor have to file Chapter 11?

The debtor has the exclusive right to file a Chapter 11 plan of reorganization with the bankruptcy court within the first 120 days after the date of the order for relief. This period may be extended up to 18 months. The debtor has the right to obtain creditor approval of the plan, but if the debtor fails to do so, any party of interest (e.g., a trustee, a creditor, an equity holder) may propose a plan. The plan of reorganization sets forth the proposed new financial structure of the debtor. This includes the portion of the unsecured debts proposed to be paid by the debtor and the unsecured debt the debtor proposes to have discharged. The plan must specify the executory contracts and unexpired leases that the debtor proposes to reject that have not previously been rejected in the bankruptcy proceeding. The plan also designates how equity holders are to be treated, describes any new equity investments that are to be made in the debtor, and includes other relevant information. The debtor must supply the creditors and equity holders with a disclosure statement that contains adequate information about the proposed plan of reorganization so that they can make an informed judgment about the plan.

What happens when discharge is granted?

The debtor is relieved of responsibility to pay the discharged debts. In other words, the debtor is no longer legally liable to pay the discharged debts. Discharge is one of the primary reasons a debtor files for bankruptcy.

What is a bankruptcy trustee? When must he be appointed?

The legal representative of a debtor's estate. He/she is appointed in a Chapter 7 (liquidation), Chapter 12 (family farmer or family fisherman), or Chapter 13 (adjustment of debts) bankruptcy case. May be appointed in a Chapter 11 (reorganization) case upon a showing of fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management.

Who is primary liable for paying the principal debtor's debt when it is due (in a surety agreement)?

The principal debtor and the surety. However, the principal debtor does not have to be in default on the debt, and the creditor does not have to have exhausted all its remedies against the principal debtor before seeking payment from the surety.

How are the proceeds from a sale, a lease, or other disposition applied?

The proceeds from a sale, a lease, or other disposition are applied to pay reasonable costs and expenses, satisfy the balance of the indebtedness, and pay subordinate (junior) security interests. The debtor is entitled to receive any surplus that it remains.

Who is the mortgagor and mortgagee?

The mortgagor is the owner-debtor and the mortgagee is the lender-creditor. Example: General Electric purchases a manufacturing plant for $10 million, pays $2 million cash as a down payment, and borrows the remaining $8 million from City Bank. General Electric is the debtor, and City Bank is the creditor. To secure the loan, General Electric gives a mortgage on the plant to City Bank. This is a secured loan, with the plant being collateral for the loan. General Electric is the mortgagor, and City Bank is the mortgagee. If General Electric defaults on the loan, the bank may take action under state law to foreclose and take the property.

What happens to nonexempt property if a debtor qualifies for a Chapter 7 liquidation bankruptcy?

The nonexempt property of the bankruptcy estate must be distributed to the debtor's secured and unsecured creditors pursuant to statutory priority established by the Bankruptcy Code. The claims of secured creditors to the debtor's nonexempt property have priority over the claims of unsecured creditors.

What are the characteristics of an ALJ's administrative order and appeal?

The order must state the reasons for ALJ's decision. The order becomes final if it is not appealed. An appeal consists of a review by the administrative agency. Further appeal can be made to the appropriate federal court (in federal agency actions) or state court (in state agency actions).

What are the conditions for which searches by the administration are considered to be reasonable (meaning not constituting unreasonable search and seizures) within the meaning of the Fourth Amendment?

The party voluntarily agrees to the search The search is conducted pursuant to a validly issued search warrant A warrantless search is conducted in an emergency situation The business is part of a special industry where warrantless searches are automatically considered valid (e.g., liquor sales, firearm sales). The business is part of a hazardous industry and a statute expressly provides for non arbitrary warrantless searches (e.g., coal mines).

What should the person who files the financing statement request?

The person who files the financing statement should request the filing officer to not on his or her copy of the document the file number, date, and hour of filing. A uniform financing statement form, UCC Financing Statement (Form UCC-1) is used in all states. The person can get the financing statement to be filed electronically using a state's e-filing system.

What is the judicial review of administrative agency actions? What happens when this judicial review is not authorized?

The power of federal and state courts to review the actions of federal and state administrative agencies that are subject to their jurisdiction. This is granted by the power of federal statutes. When an enabling statute does not provide for review, the APA authorizes judicial review of federal administrative agency actions.

What are the executive powers of an administrative agency?

The powers of an administrative agency to investigate and prosecute possible violations of statutes, administrative rules, and administrative orders. They include administrative search and administrative subpoena.

What may a secured creditor do if the secured creditor obtains a judgement against the debtor but the debtor has no money to pay the judgement?

The secured creditor can proceed to take possession of the collateral.

What is the right of redemption (of real property)?

The right of a mortgagor to recover real property that is collateral for a mortgage after the debtor's default and before foreclosure by paying the mortgagee the full amount of the debt plus costs. Principal, interest, and other costs. Pay the full amount of the debt incurred by the mortgagee because of the mortgagor's default. Redemption of a partial interest is not permitted. On redemption, the mortgagor receives title to the property, free and clear of the mortgage debt. Most states allow to mortgagor to redeem real property for a specified period (usually 6 months or 1 year) after foreclosure (aka as statutory period of redemption).

What is needed for the debtor to show to the bankruptcy court under Chapter 11?

There must be confirmation of a Chapter 11 plan of reorganization by the bankruptcy court for the debtor to be reorganized under Chapter 11. The bankruptcy court confirms a plan of reorganization under the acceptance method if (1) the plan is in the best interests of the creditors because the creditors would receive at least what they would receive in a Chapter 7 liquidation bankruptcy, (2) the plan is feasible (i.e., the new, reorganized company is likely to succeed), and (3) each class of creditors accepts the plan (i.e., at least one-half the number of creditors who represent at least two-thirds of the dollar amount of the debt vote to accept the plan). If a class of creditors does not accept the plan, the plan can be confirmed by the court by using the Bankruptcy Code's cram-down provision. In order for the court to confirm a plan over the objection of a class of creditors, at least one class of creditors must have voted to accept the plan. Example BigDotCom Corporation has financial difficulties and has filed for Chapter 11 reorganization. At the time of filing for Chapter 11, the corporation has $100 million of secured credit, $100 million of unsecured credit, and common stockholders whose equity securities are now worthless. The corporation files a plan of reorganization whereby the corporation (1) keeps the secured assets for the business, pays the secured creditors any arrearages owed, and has the secured creditors retain their secured interests in the secured assets; (2) reduces unsecured debt by $45 million and discharges $55 million of unsecured debt; (3) eliminates the interests of the equity holders; (4) rejects specified executory contracts and unexpired leases; (5) eliminates several unprofitable product lines; (6) provides for the payment of required unpaid taxes; and (7) accepts the investment of $30 million in capital from an investment bank that wants to invest in the corporation. If this plan is approved by the court, $55 million of the corporation's unsecured debt is discharged. The corporation emerges from Chapter 11 as a reorganized going concern.

What are the exceptions to the Government in the Sunshine Act?

These include meetings: Where a person is accused of a crime. Concerning an agency's issuance of a subpoena. Where attendance of the public would significantly frustrate the implementation of a proposed agency action. Concerning day-to-day operations. Decisions by federal administrative agencies to close meetings to the public are subject to judicial review in the proper U.S. district court.

What is the alternative option a secured party may choose instead of retaining the collateral? What must the secured party do to proceed with this option?

They may sell, lease or otherwise dispose of the collateral in its current condition or following any commercially reasonable preparation or processing. Disposition of collateral may be by public or private proceeding. The method, manner, time, place, and term of the disposition must be commercially reasonable. The secured party must notify the debtor in writing about the time and place of any public or private sale or any other intended disposition of the collateral unless the debtor has signed a statement renouncing or modifying the rights to receive such notice. In the case of consumer goods, no other notification needs to be sent.

What do financing statements serve as? Are they public?

They serve as constructive notice to the world where the creditor claims an interest in a property. Yes, financing statements are available for review by the public. In addition, financing statements are effective for 5 years from the date of filing.

What does it mean if there is perfection by possession of collateral?

This is when no financing statement has to be filed if the secured creditor has physical possession of the collateral. The creditor's possession is sufficient to put other potential creditors on notice of the creditor's secured interest in the property. A secured creditor who holds the debtor's property as collateral must use reasonable care in its custody and preservation. Example: Karen borrows $3,000 from Alan and gives her motorcycle to him as security for the loan. Alan does not file a financing statement. Another creditor obtains a judgment against Karen. This creditor cannot recover the motorcycle from Alan. Even though Alan has not filed a financing statement, his security interest in the motorcycle is perfected because he has possession of the motorcycle.

Is Bankruptcy Law federal or state or both?

This means that bankruptcy law is exclusively federal law; there are no state bankruptcy laws. Congress enacted the original federal Bankruptcy Act in 1878.

How does the financing statement become enforceable?

To be enforceable, a financing statement must contain the name of the debtor, the name and address of the secured party or a representative of the secured party, and the collateral covered by the financing statement. The secured party can file the security agreement as a financing statement. A financing statement that provides only the debtor's trade name does not provide the name of the debtor sufficiently.

How does a creditor minimize the risk associated with extending unsecured credit?

To minimize the risk associated with extending unsecured credit, a creditor may require a security interest in the debtor's property (collateral). The collateral secures the payment of the loan. This type of credit is called secured credit.

What is used to protect debtors from abusive and excessive garnishment actions by creditors?

To protect debtors from abusive and excessive garnishment actions by creditors, Congress enacted Title III of the Consumer Credit Protection Act.1 This federal law allows debtors who are subject to a writ of garnishment to retain the greater of (1) 75 percent of their weekly disposable earnings (after taxes) or (2) an amount equal to 30 hours of work paid at federal minimum wage. State law limitations on garnishment control are often more stringent than federal law.

What is the bankruptcy trustee entitled to and what are his/her powers?

Trustees (who are often lawyers, accountants, or business professionals) are entitled to receive reasonable compensation for their services and reimbursement for expenses. Once appointed, a trustee becomes the legal representative of the debtor's estate and has the power to sell and buy property, invest money, and the like.

Under the Equal Access to Justice Act, when is a private party permitted to sue to recover attorneys' fees and other costs?

Under this act, a private party who is the subject of an unjustified federal administrative agency action can sue to recover attorneys' fees and other costs. The courts have generally held that the agency's conduct must be extremely outrageous before an award will be made under the act.

What is distribution of rights with joint ventures?

Unless otherwise agreed, joint venturers have equal rights to manage a joint venture.

What constitutes wrongful termination of a franchise?

Unreasonably strict application of a just-cause termination clause Example: A single failure to meet a quality-control standard is not cause for termination.

What can happen with student loans in bankruptcy?

Until their graduation from college and professional schools, many students have borrowed money to pay tuition and living expenses. At this point, when a student might have large student loans and very few assets, he or she might be inclined to file for bankruptcy in an attempt to have the student loans discharged. To prevent such abuse of bankruptcy law, Congress amended the Bankruptcy Code to make it more difficult for students to have their student loans discharged in bankruptcy. Student loans are defined to include loans made by or guaranteed by governmental units; loans made by nongovernmental commercial institutions such as banks; as well as funds for scholarships, benefits, or stipends granted by educational institutions. The Bankruptcy Code now states that student loans cannot be discharged in any form of bankruptcy unless their nondischarge would cause an undue hardship to the debtor and his or her dependents. Undue hardship is construed strictly and is difficult for a debtor to prove unless the debtor can show severe physical or mental disability or inability to pay for basic necessities, such as food or shelter, for his or her family. Co-signers (e.g., parents who guarantee their child's student loan) must also meet the heightened undue hardship test to discharge their obligation.

What happens to violators of substantive rule?

Violators may be held civilly or criminally liable, depending on the rule. All substantive rules are subject to judicial review.

What is a secured transaction? Who is the secured party? What may the secured party do if the debtor defaults?

When a creditor extends credit to a debtor and takes a security interest in some personal property of the debtor. The secured party is the seller, lender, or other party in whose favor there is a security interest. If the debtor defaults and does not repay the loan, generally the secured party can foreclose and recover the collateral.

How (in essence) does a lienholder have the equivalent of a mortgage on a property?

When a lien is properly filed, the real property to which the improvements have been made becomes security for the payment of these services and materials. In essence, the lienholder has the equivalent of a mortgage on the property. If the owner defaults, the lienholder may foreclose on the lien, sell the property, and satisfy the debt plus interest and costs out of the proceeds of the sale. Any surplus must be paid to the owner-debtor.