Chapter 33 Creditors, Debtors, and Bankruptcy


33—1 Legal Protection of Creditors

Pages 593-596

Laws That Protect Creditors

Primary concern of a typical creditor is that the loan be paid promptly when due.

Secure debtspersonal property or real property are common ways the law allows creditors to protect themselves (sell or process)

 PledgesHave procession of the property until the debt is paid (stocks)

Pawn- Collateral for this type of pledge (jewelry, camera, musical instrument)- pawn ticket

Involuntary Liens

Lien- a claim, encumbrance, or charge against property that give the creditor the right, in case of default on a payment that is due, to sell the property and to use the proceeds from the sale to pay the dept.

Mechanic’s Lien- allows a person who had not been paid for labor or materials furnished to build a home, building or other real property improvement to file a legal claim against the property. If the debt is not paid, the realty may be sold

Artisan’s Lien- allows persons who have not been paid for service, such as repairing a car or watch to retain possession of the serviced items until the service charges are paid.

Laws Involving Third Parties

Suretyship – Creditor who wishes assurance beyond the debtor’s promise to pay may demand that a creditworthy third party assumes the liability. A contractual relation in which a third party agrees to be primarily liable for the debt or obligation if payment or performance becomes overdue. Three parties are involved:



SURETY- 3rd party promises to be liable for debt

GuarnetyProtects the creditor-guarantor agrees to pay if the principal debtor fails to do so. The guarantor is only secondarily liable.

Laws Concerning Unsecured Debts

Unsecured Debts-debt based only on the oral or written promise of the debtor. Must sue the debtor for breach of contract.

Laws Allowing Garnishment of Wages

Once a creditor's claim is shown to be legally valid and fair in a court hearing the creditor may receive a portion of the debtors wages directly from the debtors employer- 25% of take home pay- Consumer Credit

Protection Act