Quiz 31: Bankruptcy Law

Business

Interests of Creditors vs. Debtors: When it comes to paying debt it is better to allow a debtor the opportunity to either wipe out the eligible debt or give the debtor a realistic chance of paying the debt. This arrangement benefits both debtor and creditor. A creditor has the following options to collect against a debtor: • Collection • Judicial action to attach debtor's property, wages or bank account (garnishment) • Lien against property • Liquidation The debtor's remedies include: • Bankruptcy protection • Exemption of specific property under law • Debt validation • Protection  under the Federal Fair Debt Collection Practices Act (FDCPA)  Without the opportunity to gain breathing room and a fresh start under bankruptcy protection the economics of credit would break down and fewer people would be in the position to purchase items. Therefore the laws and redress options benefit both the creditor and debtor.

R must disclose the terms of the loan in clear, easy language so that the buyers can make the best choice for themselves. In this case, since R is targeting Spanish-speakers, perhaps advertising in Spanish would help. Penalties and fees must be properly disclosed.

With respect to real estate transactions, the Truth-in-Lending Act (TILA) applies to residential loans. The Home Ownership and Equity Protection Act (HOEPA) covers mortgage loans that carry a high rate of interest or impose high fees on borrowers. HOEPA applies if the annual percentage rate (APR) exceeds the interest rate on Treasury bonds of comparable maturity by 8 points for a first mortgage, or when the loan fees exceed the loan amount by 8 percent. In this problem, the mortgage is a residential loan, and thus TILA applies. The loan is a first mortgage on which the APR exceeds the interest rate on Treasury bonds of comparable maturity by 9 points. On these facts, HOEPA applies.

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