Debtor-Creditor Law – Fall 2000, U of Iowa – Prof. Bauer

I.       Judgment formalities

A.    Procedures

1.                  IR 231 and 232 requires following steps to obtain default:

a)                 Application must be made to clerk of court where matter is pending

b)                 Application must contain certification that written notice of intent to file was given after default occurred and sent ten days prior to application for default.

c)                 Notice must be sent to last known address of party claimed to be in default

d)                 If party applying for default knows other side has an attorney, such attorney must receive notice by mail.

e)                 See 231(d) for exceptions to above requirements

f)                   Clerk will then compute and enter default judgment.  If county judge is unavailable , any judge in district may give order.

g)                 P must be sure to file affidavit showing D is not in military service (Sec. 520).

h)                 Where applicable, file affidavit for attorney’s fees.  I.C. 625.22-.25;

(1)                Consumer credit transactions cannot contain valid attorney’s fees clauses.  IC 537.2507

2.                  Requirments for pleading

a)                 In consumer transaction, creditor must (IC 537.5114)

(1)                Allege facts of consumers default
(2)                Amount creditor is entitled to (amt. must be liquidated)
(3)                Indication of how amt. was determined.
(4)                Complaint must be verified by creditor, unless sworn testimony is adduced showing entitlement to relief.

3.                  No judgment will be entered on note until note  is filed w/ clerk for cancellation.  IRCP 228.

B.     Interest

1.                  General rule calls for 5% annual interest for pre-filing interest.  IC 535.2

a)                 Interest runs from time money becomes due and payable (i.e. Brenton Nat’l Bank:  In conversion cases, interest usually starts on date coversion took place)

b)                 If damages are complete, interest runs from that time even if damages are unliquidated at that point (Id.).  But this is not certain (????).

2.                   Generally, Interest accrues from date of commencement of action.  Use T-bill rate plus 2%.

3.                  For future damages, calculate from date of judgment. 

a)                 For IA cases, use t-bill rate + 2%

b)                 For federal cases, use t-bill rate alone.  (Weitz).

C.    Foreign Judgments

1.                  Full faith and credit must be given to judicial proceedings in other states.  Records are to be admitted by attestation and seal of the court annexed.

2.                  IA allows actions to be brought on foreign judgments rendered within last 20 years (infinity for alimony/child support).  IC 614.1(6).  Stay must be granted if situation in other forum demands so.  IC 626A.4

3.                  Federal judgments may be registered across judicial districts.  28 usc 1683.  In state cts. as well????

4.                  Ways to preclude adoption of foreign judgment

a)                 Statute of limitations

b)                 Debt has been satisfied

c)                 Lack of due process (e.g. personal jurisdiction)

5.                   ways to collect on foreign judgment:

a)                 Use statutory procedure under 626A; or

b)                 Start lawsuit (action on judgment, not original cause of action

c)                 If judgment is federal, register in local fed ct.

II.     Post-Judgment Remedies

A.    Judgment liens

1.                  Judgments become liens on all real estate interests of D for period of 10 years from date of judgment.  IC 624.23(1)  This includes support judgments.  IC 624.23(4).

a)                 Homestead exemption applies.

b)                 Ownership not necessary (i.e., leasehold is lienable).

2.                  In counties where judgment wasn’t rendered, lien does not attach until judgment is filed in county courthouse.  IC 624.24

3.                  App. Ct. judgments must be filed in district cts. for lien to attach.  IC 524.25

4.                  Fed. Ct. judgments become liens if state filing procedures are followed.  28 usc 1962.

5.                  A judgment that is won by bringing an action on an old judgment is treated as a new judgment for lien purposes, so 10 year period begins when new judgment is rendered (Chader).  Judgments generally can’t be renewed until 9 years have passed.  Revival of judgment does not renew lien.  (Whitters)

6.                  Senior lien holder is SOL if judgment lien lapses and junior lien holder then levies (Lakin).

7.                  If judgment liens attach simultaneously, (i.e., debtor acquires property after two judgments for separate creditors), neither lien has priority over the other (Kisterson).

8.                  Judgment lien cannot attach to a greater property interest than what debtor holds at any given moment after judgment (e.g. Denegre, D contracted to sell land to 3P before judgment was rendered; lien did not attach to 3P’s equitable interest in the real property since it was out of debtor’s hands before judgment).

9.                  Creditor who purchases land at sheriff’s sale is entitled to BFP status (Gower). Buyer at exection sale gets 60 days to record.

10.             IA protects only BFPs, not lien creditors with respect to rights in land (i.e. if vendee informs lien creditor of vendee’s title, creditor’s right to sell dissappears).?????

11.             Mortgagor must but BFPs on notice of lien (e.g., Keefe – mortagage recorded but not on deed, so lien creditor purchased land free and clear of mortgage).

a)                 But a person put on inquiry must investigate.  Inquiry might arise from

(1)                Record notice
(2)                Actual  notice; or
(3)                Inspection, if it should render purchaser suspicious.

B.     Executions and Execution Liens

1.                  Unlike judgment liens, execution liens attach to personal property (and like judgment liens, they attach to real property).  Lien attaches at time of levy, not before (Reeves).  It does not attach to proceeds. ??????

2.                  Execution can be levied anytime before judgment expires.  IC 626.2

3.                  Execution lien takes priority over unrecorded prior security interests, except for purchase-money interests that have been perfected within 10 days of debtor’s receipt of collateral.  See ucc 9-301(2).

4.                  Only one execution can exist at any one time.  IC 623.3

5.                  Execution is issued on demand of creditor.  IC 626.7.  But if officer receives notice of exemption or third-party claim of ownership in property, he is not bound. ?????? IC 626.50

6.                  Officer must make entry in encumbrance book for any real estate levied upon, in order to put public on notice.  IC 626.20

7.                  Officer must give notice of levy to D.  IC 626.50

8.                  If sheriff is sued for wrongfully taking property, writ may be filed w/ court and then P must look first to D to satisfy judgment.  IRCP 41.

9.                  Duties of officer making execution levy (IRCP 258-259):

a)                 Execute with diligence

b)                 Act within 70 days of issuance, not receipt, of writ.  IC 626.12

c)                 Collect and sell only amount of property that is needed to satisfy judgment, to extent practical.  (principle of proportionality)

d)                 Endorse execution and levy.

e)                 Give receipt for levy and deliver it, w/ money collected, within 70 days of issuance.  IC 626.16

10.             Lien not created until (IRCP 260)

a)                 Officer takes possession of property, or;

b)                 Officer takes inventory of goods to be levied on and files such inventory listing in appropriate office.

11.             Enforcement of federal judgment will generally be by writ of execution, following state procedures unless fed. Law governs differently.

12.             Sale may take place after expiration of writ of execution, as long as levy took place in time (Butterfield).

13.             Levy must be completed to be valid (City Fuel)

14.             If goods are of such a nature that they can’t be physically seized, officer need only do something that reasonably signifies taking of possession (i.e. Barr, Sheriff took crops by going out into field and declaring them seized).

15.             If levy of execution is suspended in mid-stream, it becomes void against after-acquired liens.  (Burleigh).

16.             Lien creditor will take priority over holder of unperfected security interest, except for purchase money interests perfected within 20 days of debtor’s taking possession of collateral.  IC 554.9301.

a)                 Financing statement must be filed to perfect unless secured party has possession of collateral or has purchase money interest (exception is motor vehicles or inventory).  IC 554.9302.  ?????

17.             Buyer of consumer goods in ordinary course of business takes free of security interest of unaware of such interest, unless secured party has filed.  IC 554.9307(2).  Buyer of farm products is subject to lien if notified if he fails to fulfill payment schedule set out in notice. IC 554.9307(4)(a).

18.             Security agreement cannot prohibit right of debtor to transfer his rights in the collateral. IC 554.9311.

19.             Execution lien creditor must pay amt. of secured debt to creditor or deposit same amt. w/ court..  Interest must be included.  Failure to comply w/i 10 days results in discharge of lien.  Creditor is then subrogated but holder can be reinstated.  Proceeds of sale will go first to secured party.  Creditor has right to demand statement of indebtedness from secured party, and failure to comply results in loss of priority .  Statement must be sufficiently detailed (See Feister).  If secured party is garnished, it must be paid sum garnished (or sum should be deposited w/ clerk) IC 626.34-626.49

20.               Officer who seizes property is exempt from liability until he has notice of 3rd party interest or exemption.  Thereafter he may request indemnifying bond from creditor, and if refused may cancel levy or return property to debtor.  IC 626.50-626.55

21.             Security interest in motor vehicles must be noted on certificate of title, by application of secured party to county treasurer.  See 321.47 & 321.50 for details.  But execution lien is valid w/o notation (Printen).

22.             Property owned jointly by debtor and others may be levied on.  IC 626.32-626.33.  But proper procedures for such property must be followed (Petersen). ?????

23.             For mortgage foreclosures, mortgaged property will be sold to extent necessary to satisfy debt.  If entire property is sold and debt remains unsatisfied, general execution may be issued against debtor.  IC 654.5-654.6.

24.             Chapter 615 places two-year limitation on executibility of forclosure judgments for farms and family dwellings.  ??????  Such judgments are not renewable

25.             Stay may be granted if debtor can find a surety; but surety may at any time apply for termination of stay if it is worried that execution must take place or it will be left to pay.  Sufficiency of bond may be challenged.  IC626.58-626.68; IRAP 7-9.

C.    Post-Judgment Garnishment

1.                  Maker of a note is exposed to double liability if he pays instrument without surrendering it.  UCC 3-305.  But “mini-interpleader” protects garnishee.  IC 642.10.  Also, creditor must deliver paper or post bond in case of promissory note that will protect garnishee from double payment should instrument turn up.

2.                  Once notice is served on garnishee, disposal of property occurs at garnishee’s peril.  BL 163.  IRCP 54 has notice requirments penalizing garnishee for such disposal.

3.                  If debtor assigns interest after garnishment, garnishment lien still exists.  There are exceptions to this rule. BL 174-175

4.                  Garnishment proceedings on execution are not affected by its expiration or return.  IC 626.27.  ?????

5.                  Garnishment proceedings are governed by IC 642.5-642.20.  think of garnishment as giving rise to a minature lawsuit.

6.                  Garnishee can only be garnished for a debt that is in fact owing, but it need not be due.  (e.g. Malone – because future alimony payments were contingent on ex-wife being alive at time of payment, those payments could not be garnished).  70-day net allows capture of debts that become due within that period.

7.                  Garnishment notice is effective until annual maximum has been garnished,  writ of exection expires, or judgment is satisfied, or garnishee receives notice that garnishment has ceased.  Expiration of execution does not affect garnishee’s duties in regard to property already affected. IC 642.22(1) and (3).

8.                  Supervised financial institution has responsibility to monitor acounts under garnishment for deposits.  IC 642.22(2).

D.    Supplementary Proceedings & Creditor’s Bills

1.                  Equity allows assets beyond writ of execution to be reached.

2.                  Equity can be used to undo fraudulent conveyances

3.                  An lien attaches to property that is found and appropriated for creditor’s benefit (BL 141).  Creditor’s bill should contain adequate description of property for lien to take priorty over subsequent ones (BL 143).  See IC 630.18

4.                  Creditor’s bills can be filed on behalf of multiple creditors.

5.                  Discovery can be tagged onto end of legal proceedings for purposes of satisfying judgment, so equitable proceedings are less often needed.

6.                  IC 630.1-.15 are supplemental proceedings for actions at law.  IC 630.16-.19 are equitable proceedings.

7.                  Defendant’s who refuse to participate in supplementary or equitable proceedings can be held in contempt.  I.C. 665.2(3)

8.                  State law controls supplementary/equitable procedures for federal district courts.  FRCP 69(a).

9.                  When processes at law are adequate, use of equity is not appropriate (Reardon – D held in contempt, but since proceedings never should have taken place, he was let go on appeal).  But “adequate” does not mean “available.  Thus, equitable proceedings may be used where law is impracticable (e.g. Eikenberry – Ct. ordered D to turn over property in hands of out-of-state son-in-law rather than requiring P to have son-in-law garnished).

10.             A person that is called as a witness to a proceeding but not as a party to it is not obligated to follow orders of the court that she is not bound by (Estey & Camp).  Such orders are for protection of such party, though.  If Creditor wants to get at property, other remedies are available to do so.

III.  Debtor Protection Mechanisms

A.    Real Property Exemptions

1.                  Homestead

a)                 Normally, only property which is occupied as home and in which debtor has an interest is a homestead (BL 240).  Interest is virtually any right to possession as against someone else (BL 243).  Debtor  may only have one homestead,  IC 561.1, but appurenent buildings might be included.

b)                 Even property that is used for business may be a part of exempted homestead (BL 241).

c)                 Value of homestead is amt. of debtor’s equity in property at the time exemption is asserted (BL 243).  This is the sale price of the physical property, without considering encumbrances (Willenbrock).????

d)                 Homestead exemption extends to ungathered products on land.

e)                 Funds from sale of homestead are exempt for a reas. Period of time to allow purchase of new home.

f)                   For purposes of determining whether abandonment has taken place, debtor’s intention controls.  BL 250.  Ownership (not necessarily fee simple, e.g. prepaid rent), occupation, and possession are key factors.

g)                 IA limits homestead to 40 acres (rural) or ½ acre (city), or until it reaches $500 in value.  IC 561.2

h)                 Spouse must join in conveyance/encumbrance of homestead.  IC 561.13 

i)                    Persons living together only get one homestead exemption in the aggregate.  IC 561.16

j)                    New homestead is exempt to extent of old.  IC 561.20

k)                 Homestead exemption not applicable to prior-contracted debts, but other assets must be exhausted first before homestead is sold.  IC 561.21(1) . Prior debt need not be overdue (e.g. McMorrow – child support/alimony owing at divorce decree, so after-aquired homestead not exempt even though payments have been timely).

l)                    Written K may waive homestead, but it will be last asset reached upon deficiency.  IC 561.21(2) 

m)               Debts incurred for work done exclusively on homestead are not subject to exemption.  IC 561.21(3)

n)                 If debtor dies w/o survivors or issue, debts might attach to home.  IC 561.21(4).

o)                 Judgment lien does not attach to homestead as long is it remains homestead continuously (Lamb).

p)                 Homestead exemption statutes are to be liberally construed (Willenbrock).

q)                 Improvements should be done to old homestead to have value of them protected by new homestead (See Willenbrock).

r)                   If homestead is sold under K, lien will not attach so long as equitable conversion takes place while property is unencumbered.  Also, IC 624.23 allows Debtor to make written demand to Creditor to levy on real estate or lose lien if Creditor fails to do so within 30 days.  See SF 247.

s)                 Homestead rights cannot be split, so debtor must have full homestead rights to be subject to lien (Underberg – husband alone could not waive hometstead rights).  See also IC Chapter 597.  But if non-debtor spouse dies, lien becomes enforceable.

t)                   Where debt is contracted before marriage, and marriage preceeds purchase of homestead, which preceeds judgment, homestead is exempt from support obligations (Baratta). ??????

2.                  Contractual remedy may be  modified by state w/o violating constituion, as longs as obligation is not destroyed. (Neel - Homestead rights are separate from K).  3 prong test:

a)                 Whether contractual relationship has been substantially impaired.  If so, then

b)                 Whether state has significant and legitimate public purpose to justify legislation; and

c)                 Adjustment of rights/responsibilities of contracting parties must be appropriate proportionally to justification that modification rests on.

B.     Personal Property Exemptions

1.                  Waiver of exemption favoring unsecured creditor is void under federal law.  BL 230

2.                  IC 627.6 lists general exemptions. Exemptions can be “stacked.”   Spouses can combine their separate exemptions.  Money judgment for the exemptions is also exempt.  IC 633.22.  627.13 gives debtor $100 wild card.  Exemptions offer no protection from purchase-money executions.  IC 627.5.  Motor vehicle exemption dissappears if vehicle executed on was involved in accident on state highway that gave rise to judgment.  IC 627.7

3.                  Exemptions cannot be waived except by failure to claim them when required to do so in writing by levying officer.  IC 627.3

4.                  IC 626.50-.55 covers Sheriff’s duties re levy.

5.                  If property is wrongly seized, debtor may give notice of exemption under IC 626.50 or may bring replevin action under 643.1 (3).

6.                  IC chapter 631 addresses treatment of small claims proceedings.

7.                  Personal earnings are not exempt from support obligations.  IC 627.11 & .12

8.                  Debtor cannot waive exemptions at outset of K (Curtis).  But debtor can grant security interest in property to creditor.  In cases involving commercial lender, only a purchase money secured party could take a non-possessory interest in otherwise exempt household goods.  See CFR 444.2(a)(2) & (4).

9.                  State exemptions may be more generous than federal exemptions.  CFR 444.5

C.    Wage garnishment limitations, income exemptions, ect.

1.                  Federal law prohibits garnishment of more than 25% of weekly disposable earnings or 30 times federal minimum wage, whichever is less.  15 USCA 1673(a)

a)                 Higher percentage can be taken for support payments

2.                  Under IA law, maximum amount that can be garnished in a calendar year varies progressively and is set forth in IC 642.21

a)                 A judge may lower the amt. under IC 630.3A

b)                 IA law prohibits garnishment of lesser of 25% of disposable earnings per week, or amt. by which those earnings exceed 40 times minimum wage.

3.                  A single garnishment is usually not enough to continue collection.  See IC 642.22 for renewal time window.

4.                  Notice of garnishment must be served.  See SF 243.

5.                  Employee who is fired because of garnishment has civil action against employer under IC 537.5201 and may recover attorney’s fees.

6.                  Exempt earnings that are deposited in bank account  continue to be exempt for 90 days (Miehe). 

a)                 With commingled funds, most courts will apply FIFO to protect debtor.

b)                 Test of exemptability should be debtor’s control over funds to meet immediate needs (BL 235).

7.                  Earnings of independent contractors are treated as wages for exemption purposes (Cooks). 

8.                  Social security, disability benefits, veteran’s benefits, workers compensation, child assistance, federal pension money, and support payments received are exempt under Chapter 627.

9.                  If fed. intends money to be exempt, state cannot make law circumventing the exemption (Bennet).  But state can hold debtor in contempt if creditor is simply trying to route money to the federally intended recepient (Id. citing Rose v. Rose, where veteran’s disability benefits where sought to fulfill support obligation).

10.             Once some exempt funds are paid out, they are no longer exempt (e.g. Colville – pension funds could be seized after debtor deposited them in bank).

11.             Certain pension plans & annuities are exempt under  I.C 627.6(8)(e)-(f).

a)                  Factors to consider would be who contributions came from, over what time period contributions were made, return on investment, control debtor has over funds, and on what account instrument was made (Eilbert).

12.             Under definition of “earnings” under 642.21, limitations apply to pension payments

13.             Wages can’t be assigned without writing signed by debtor and spouse.  IC 539.4 

a)                 Wages can’t be assigned for purposes of paying debt arising from a consumer credit transaction.  IC 537.3305

b)                 Federal restrictions on assignments of wages are located at CFR 442.2(a)(3)           

14.             Wages of federal employees can’t be garnished while in hands of gov’t, unless immunity has been waived (BL 175).  It is waived by 5 USC 5520A(b) & (h).

15.             Wages of IA employees may be garnished, subject to several restrictions.  See 642.2

D.    Execution Sale Price Inadequacy and Statutory Redemption

1.                  Sheriff must divide land to extent feasible so as to sell only enough to satisfy debt.  IC 626.84

a)                 If land can’t be sold in parts for want of bidders, entire lot can be sold (Copper).

2.                  Notice of public sale should be posted under IC 626.74-75. 

3.                  Sale w/o notice is voidable but not void.

4.                  Inadequacy of consideration at Sheriff’s sale is not by itself sufficient to void a sale, but it is a very important factor in determining whether fraud (actual or constructive) has taken place (Copper).

a)                 Secret sale is not allowed

b)                 If procedure is bad but price is good, error likely to be deemed harmless

c)                 Where procedure is followed correctly but price is bad, extraordinary circumstances would be needed to void sale

d)                 If consideration is very low, buyer may be on inquiry notice.

5.                  Personal property can’t be sold for under 2/3 of its appraised value.  IC 626.93

6.                  Redemption procedures and rules are covered in IA chapter 628.

a)                 Statutory redemption runs downstream only (Seniors can’t redeem from juniors)

b)                 628.26-.29 deal with mortgage relationships, not judgment creditors

c)                 Title is transferred by passage of time, not grant of certificate

d)                 Plaintiff may elect to make forclosure non-redeemable.  IC 654.5 ??????

e)                 Right to redeem can be assigned

f)                   Sheriff’s deed is a quitclaim deed

g)                 If debtor redeems after the “3rd Quarter,” judgment liens may re-attach, and would be equal in priority.  Uncertain what happens if debtor redeems during 3rd quarter. ???????

h)                 If debtor or debtor’s assignee redeems within exclusive period, others rights of redemption evaporate, but liens remain (McFarland).

7.                  Redemption is not available for personal property.

E.     Farm Mediation

1.                  Farm mediation is voluntary as to debtors but mandatory as to creditors.  IA Ch. 654A.

2.                  Applies to “agricultural” property.  There is an incentive not to fight  classification of a given parcel since courts settle things more slowly.

F.     Abusive debt collection practices

1.                  Malicious use of process gives rise to tort liability (Nix) .  Intentional malice is required.  IC 537.5201(7). In IA, debtor has two years to bring suit.  IC 537.5201(5)

2.                  For purposes of federal law, many persons collecting a debt may not be deemed a “debt collector” under 15 USC 1692a.   IA law has broader definition.  IC 537.7102(5)

3.                  Prohibited collection practices are expressed in IC 537.7103.

4.                  In terms of measuring whether harm is offensive, debtor is analyized at low end of reasonable person standard (Bingham).

5.                  A debt arising form dishonored check involved in consumer transaction is a “debt” for collection law purposes (Duffy).

6.                  UCCC only applies to consumer credit sales, so some transactions that give rise to collection are not covered (e.g. Midwest Recovery – check written for cash bounced; debtor could not sue for abusive collection tactics, since cash is not “goods”).

7.                  “Debt” for purposes of IA law includes certain checks.  IC 537.7102(3)

G.    Right to Cure

1.                  After default (defined by IC 537.5109), creditor must notify debtor of right to cure if transaction was a consumer credit transaction.

H.    Family Support Obligations & Victim Restitution

1.                  Failure to meet support obligations can result in contempt hearings.  IC 598.23.  It may also be a federal crime under 18 USC 228)

2.                  Full faith and credit is given to support judgments, and ten-year judgment lien attaches.  IC 624.23(4).  This lien attaches to titled personal property (i.e. automobiles).

a)                 Each installment is a separate judgment as it becomes due for purposes of statute of limitations

b)                 Payments that are made are allocated to oldest debts

3.                  There is no statute of limitations for getting an execution lien to satisfy a support obligation.  IC 614.1(6).

a)                 Federal Courts apply longest statute of limitation between judgment state and forum state.  28 USC 1738B(h)

4.                  Exemptions for pension payments, ect., are inapplicable to collecting support judgments.  IC 627.6A

5.                  Ch. 252D sets out obligations and remedies for delinquent payments.

6.                  State can step into shoes of obligee after making welfare payments (Shepard – exemptions no good against state that subrogated claims to support payments)

7.                  Annual garnishment restrictions do not apply to child support (Eklofe).  But they do apply to spousal support. ?????

8.                  70-day net is irrelevent to garnishment of child support.  A single execution is sufficient.

9.                  IC 642.24 has been interpreted not to subrogate prior in time creditors.

10.             Victim restitution

a)                 Amt. is keyed to harm; rate of pay is keyed to ability to pay.  Change in circumstances can accellerate rate. 

b)                 No right to jury trial in setting damages in criminal case, since they are part of sentence proscribed by judge

c)                 Restitution order constitutes a lien against all of the debtor’s property.  IC 910.7A, .10

d)                 Restitution order will offset amt. of award in civil action.

IV. Pre-Judgment Remedies

A.    Attachment

1.                  Attachment lien is inchoate until judgment is rendered.  If creditor prevails, lien  is perfected and dates from time of attachment (BL 298).  Lien attaches when officer levies o property.  IC 639.38

2.                  Attachment cannot occur until an action has been commenced.  IC 639.1

3.                  Sufficient grounds must exist for attachment.  IC 639.3

a)                 Non-resident debtor

b)                 Rascality

4.                  Plaintiff must file bond to attach.  639.11

5.                  Two types of bonds are available to D

a)                 Bond to discharge causes all property to be returned.  IC 639.42

b)                 Delivery bond allows return of portions of the property, but requires double value posting. IC 639.45

6.                  If D is entitled to immediate possession of property in the hands of another, it may be seized.  IC 639.24

7.                  If not founded on contract, value limit on attachment will be decided by judge.  IC 639.8

8.                  State procedures are available in federal ct.  FRCP 64.

9.                  If attachment is wrongful, suit is available under 639.14

a)                 Malice is required, but need not be intentional (legal malice is sufficient) (Arthur Elevator).  Lack of probable cause may be evidence of malice (Id.)

B.     Pre-Judgment Garnishment

1.                  Equivalent to attachment, but upon 3rd party. IC 639.25

2.                  If debt arose out of consumer credit transaction, unpaid earnings or deposited earnings cannot be garnished w/o judgment.  IC 537.5104

3.                  Wages of state employee cannot be garnished without a judgment.  IC 642.2(2)

C.    Self-Help, Replevin, and Specific Attachment

1.                  Key issue is whether plaintiff has exclusive right of possession as against debtor (BL 302-03).

2.                  Plaintiff must post bond to bring replevin (BL 309)

3.                  After default, a secured party may take possession on its own if it can do so without breaching the peace.  IC 554.9503.  violation gives rise to action of conversion.

4.                  Replevin procedure is outlined in IA Ch. 643

a)                 Notice and opportunity to be heard are required under statutory law, but can be delayed until after seizure if necessary ?????

b)                 In case of consumer transaction, notice of right to cure must be given

5.                  Specific attachment is available under IA Ch. 640

D.    Confessions of Judgment

1.                  Statement must be filed and specific amt. must be set forth for debts due or to become due.  IA ch. 676.

2.                  If debt arose out of consumer credit transaction, confession will not be authorized unless it is executed after default. IC 537.3306 ??????

3.                  Federal law prohibits confession of judgment for extension of credit to consumers in or affecting interstate commerce.  16 CFR 442.2(a)(1).

V.   Statutory Liens

A.    Lessor’s lien

1.                  UCC art. 9 defers to possessory statutory liens.

2.                  Landlord’s lien has been abolished as to personal residences.  It is relevent to commercial and farming operations.  See IA ch. 570

3.                  Landlord’s lien is superior to Art. 9 security interest, even if acquired after in time (Perkins). 

4.                  Landlord’s may sue buyer for conversion if lien was not waived (Perkins)

B.     Mechanic’s Liens

1.                  Construction lien’s priority is based on timing vis-à-vis other perfected liens.  They are superior to non-perfected prior liens .  IC 572.18Priority dates from time project fist begins, regardless of which particular company begins the work (BL 269).

2.                  Ask about 572.20 ???????

3.                  General contractor can post bond to indemnify owner against claims of subcontractors.

4.                  Mechanics liens should be filed within 90 days from the date on which work or supplying ended.  IC 572.9.  If not, then subs can reach owner only to extent that owner is indebted to general; but if bond was posted then full extent of bond can be claimed.  IC 572.11

5.                  Statute of Limitations on mechanics lien is two years from expiration of 90 day filing period. (keep in mind that action can still be brought on debt).

VI. Constitutional Limitations

A.    Pre-Judgment Judicial Remedies

1.                  Creditors that use an unconstitional statute are personally liable under Sec. 1983.

2.                  If amt. of debt is unliquidated, creditor may have no claim to property (Doehr)

3.                  If debtor is not notified of possible seizure beforehand, there should be a good reason for not making him aware

4.                  Creditor w/ pre-existing interest in collateral is more likely to survive constituional scrutiny

5.                  Doehr Balancing test:

a)                 Consideration of private interest that will be affected

b)                 Risk of erroneous deprivation and probable value of additional/alternative safeguards

c)                 Interest of party seeking prejudgment remedy, w/ due regard for administrative concerns in having an efficient mechanism available to creditors

B.     Post-Judgment

1.                  Debtor’s interest in continued use of property should be substantially protected (Finburg)

2.                  At mininum, debtor must have opportunity to be heard promptly after seizure (Id – debtor had gone 15 days w/o social security funds that were wrongfully seized, this was too long).  Notice should be reasonably calculated to provide debtor with opportunity to be heard (id).

3.                  Administrative law may save some statutes from being unconstitional.

VII.          Fraudulent Conveyances

A.    Relevent Dimensions of Prior Law

1.                  Fraudulent conveyance is voidable but not automatically void. (BL 182).

2.                  Statute of limitations on a fraudulant conveyance action is five years.  IC 614.1(4).  Cause of action accures upon discovery of fraud.  IC 614.4

3.                  Even w/o bond, equitable lien may attach under 630.18 ?????

4.                  Fraudulant grantor retains equitable title as to creditors making claims.  IC 639.30.  But grantee has equitable title as against grantor.

5.                  BFP cuts off creditors rights against collateral.  Proceeds remain attackable.

6.                  A conveyance is not fraudulent if fair consideration is given.  But even where consideration is of substantial value, it will still be inadequate if it bears little resemblence to value of property conveyed

7.                  If transferee knowingly participates in fraud, the consideration it gave for property can be seized by creditor, as well as the property in question (Shirley).  If transferee is innocent, transferee will get to retain property to extent of value of consideration or will have lien against property.  IC 684.8(4)

8.                  A gift is presumed fraudulent.  Such transfer is voidable unless transferee can show that transferor remained solvent after the transaction (Frescoln Farms).

9.                  Exempt property is not measured into solvency (id).

10.             Transfer of exempt property is not fraudulent (Hall Robert’s Son).  Creditor must be injured for fraud to be found (Id.).

11.             Land that is not contiguous to homestead is not exempt.

12.             Even though mortagee has interest in homestead, it must first satisfy it’s debt against excess land, even where other creditor’s who have no right to homestead will be harmed because mortgagee exhausts excess (Id.).

13.              

B.     Uniform Fraudulent Transfer Act (See IA ch. 684)

1.                  See factors to be considered in determining fraud (BL 185).

2.                  Even if debtor retains value, conveying property so as to move value into unreachable assets is fraudulent.  This is true as against current and future creditors.  IC 684.4

3.                  Transfer to insider for antecedent debt is fraudulent.  IC 684.5 (2).  SOL is one year.  IC 684.9(3)

C.    Spendthrift and Revocable Trusts

1.                  Spendthrift trust funds are protected against claims of creditors so long as beneficiary is not entitled to payment.  IC 633.2301

2.                  Revocable trust is reachable to extent of revocability.  IC 633.3104

VIII.        State Law Insolvency Procedures

A.    Accord & Satisfaction

1.                  If amount of claim is unliquidated, then an instrument given in full consideration of debt will extinguish debt.  IC 554.3311

B.     Compositions & Extensions

1.                  Compositions are contracts that reduce the amount of debt owed to each creditor.  Extensions are contracts that delay payment.  Many instruments serve both functions.

2.                  Consideration is furnished by virtue of promises made by creditors to each other not to seek full debt.

3.                  Failure of debtor to abide by instrument will generally revive original debts, unless one or more creditors cannot be returned to original position (Plaza Music)

4.                  Creditors have to be aware of each other for composition to be valid.  They should know what induced each other to agree to terms.

C.    Assignments for the Benefit of Creditors ???????

1.                  Assignment must be for benefits of all creditors, on pro rata basis.  IC 681.1

2.                  Assingment cannot be made for discharge of remaining debt claimed by creditors, where creditors have not assented (Sperry, Watt & Garver).  Such transfer is a fraudulent conveyance. (But would it be good for debtor as against transferee ??????)

IX. Bankruptcy Proceedings

A.    Bankruptcy Court System

1.                  Federal law preempts entire field of bankruptcy

2.                  District Courts have original jurisdiction over bankruptcy cases. 28 USC 1334. 

3.                  Bankruptcy judges may determine all “core” proceedings dealing w/ Title 11. 20 USC 157.  Bankruptcy judge may make finding regarding “non-core” proceedings, and then submit them to district court for certification.  157(c ) (1) 

4.                  District courts hear appeals from bankruptcy court.

5.                  Bankruptcy appellate panel may hear cases if parties consent.  20 USC 158 (b).

6.                  Courts may practice abstenation. 305.

B.     Commencement of a Case

1.                  Debtor must be a “person.”  Sole proprietorships don’t count.  109(b), nor generally does gov’t unit.  101 (41).

2.                  Debtor may not be a railroad, insurance company, or banking institution.  Id.

3.                  Bankrupt need not be insolvent to file.

4.                  Debtor generally can’t refile if he has had a case dismissed within prior 6 months.  109 (g).

5.                  Venue only available where debtor has lived 4 of last 6 months, or in principle place of business, or location of assets. 28 USC 1408

6.                  Debtor must be aware of non chapter 7 remedies by counsel and by clerk of court  and must confirm that he has such knowledge. 341(d) and 342(b).

7.                  Involuntary proceeding can only be brought by holders that have $10,775 in aggregate claims that exceed liens on debtor’s property.  303.  ?????? (at least 3 holders?).

a)                 If debtor does not respond to involuntary petition, relief will be ordered.  303(h).

b)                 If debtor does respond, relief can only occur if

(1)                Debtor is not paying debts as they become due; or
(2)                All of debtor’s property has been taken charge of by another within prior 120 days.

c)                 Involuntary case can’t be brought against “farmer.” 303. ?????

8.                  Charitable contributions made by debtor that do not exceed 15% of gross income cannot be taken into account when deciding whether to dismiss petition. (707)(b)

9.                  Dismissal does not bar later discharge.  349.

10.             If rehabilitation plan is objected to, it cannot be approved unless

a)                 Complaining creditors claim can be fully satisfied out of available assets; or

b)                 Debtor’s disposable income is completely spoken for for  three years from first scheduled payment date. 1325(b).

11.             To dismiss for “substantial abuse,” it should be case that debtor can pay creditors out of future income (Walton).

12.             “family farmer” means someone w/ less that $1.5 million in debt, 80% of which arose from farming operations (excluding home).  101 (18).

a)                 “farmer” is someone who received 80% of gross income in farming operations. 101(20).

C.    Automatic Stay

1.                  Auto stay dates from time of filing.  It is lifted as to property that leaves estate.

2.                  Any act to collect is barred once stay is in effect.

a)                 Violation of stay gives rise to civil liability under 362(h), if debtor is an individual (not a corporation).

3.                  Auto stay does not protect 3rd parties.

4.                  Auto stay does not affect criminal proceedings, paternity proceedigs, support obligations, or rights to perfect.  362(b).

5.              &n