Quiz 19: Creditors Rights and Bankruptcy


Facts: The person DR filed a chapter -7 bankruptcy case and the court discharged him from a loan of $ 9,523 payable to C Financials. C Financials received the information about the discharge of the debt, but still continued to show the loan as outstanding in its account and his credit information reports. When DR applied for a loan, later on, the loan application was rejected on the basis of the credit information report. He paid the loan to clear the dues. Chapter 7 -Bankruptcy petition: When individuals or business men file for bankruptcy under chapter -7 of the bankruptcy law, the court has the authority to discharge certain debts of the debtors. The plan is used by individuals and business organization as an opportunity to reorganize their plans and business activities. Once a bankruptcy court discharges a loan from the account of a debtor it should not appear in any of the credit reports of the debtor. The debtor need not repay the loan discharged by the court. Outcome: The price of the discharged debts increased from 5 Cents from every Dollar to 7 Cents on every Dollar. This is an indication that the number of consumers buying such unpaid, discharged debts is growing day by day. Credit card Companies, Personal financing companies, and other credit organizations push the customers hard to repay the loans despite the fact the loans are discharged. For that reason, the price of the discharged loans went up to 7 Cents for a dollar from 5 Cents to a Dollar.

PMSI or purchase-money security interest is created in consumer goods when buyer and seller agree to extend a part of or full credit. In this case with a PMSI, the debtor has paid less than 60 percent of the purchase price. Thus, the creditor can dispose of the collateral in a commercially reasonable manner. This, generally, requires notice of the place, time, and manner of sale. However, after default, the debtor can refrain from the right to notice. Before the disposal of the collateral, a debtor can retain the collateral by tendering performance of all of the obligations secured by it. Further, he must pay the creditor's required amount in retaking and maintaining it.

Prejudgement attachment refers to the seizure of property by the court prior to judgement for a debt which is past-due. A writ of execution refers to the order of court which is issued after judgement has been passed against the debtor for seizing his non-exempt property. The proceeds from the sale are used for paying off the judgment and other costs, and remainder is paid to the debtor. The creditor can make use of these remedies for securing the amount to be earned from the debtor and also in cases where the collateral is not enough for paying of the debtor's debt.

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