Discharging of Debt Under UCC Article 9

The Uniform Commercial Code Article Nine, includes details about secured transactions and the discharging of debt in lending situations that involve some form of collateral. Legally, after a debt discharge, the creditor has no legal basis to pursue the debtor and has no claims on the assets that are currently owned by the debtor or assets that the debtor acquires in the future. The discharge marks the end of the lending agreement.

Uniform Commercial Code

Prior to the creation of the Uniform Commercial Code, every state had its own commercial laws and this created problems for companies and individuals that operated across state lines. A group of commercial lawyers from around the United States began working together on a document that could provide a framework for commercial laws across all 50 states and the District of Columbia. The Uniform Law Commissioners and the Law Institute, regularly review the UCC and have the power to make amendments to the original document. Every state bases its laws on the UCC although laws in most states deviate from the document to some extent.

Secured Transactions

Under the UCC, in the event of borrower default, a creditor may take possession of the collateral that the borrower pledged to secure the loan. The creditor must sell the collateral and use the sale proceeds to cover the cost of repossessing it, holding it and listing it for sale. The creditor can also use sale proceeds to payoff the unpaid debt and to satisfy any junior liens that were secured on the property if junior lienholders provide proof of those debts.

Sale

Article nine of the UCC states that the creditor must dispose of the collateral in a commercially reasonable way. The creditor must notify the debtor and all other lienholders prior to the sale although the UCC does not provide an exact time frame other than saying the creditor must give "reasonable notice." In instances involving non-consumer goods, the creditor must provide interested parties with 10 days notice. If the creditor fails to notify the debtor of the sale, the debtor can seek damages that amount to 10 percent of the principal owed on the debt plus any service charges that were incurred.

Discharge

In instances where the debtor had paid less than 60 percent of the debt owed, the creditor can retain the collateral in exchange for discharging the debt. The creditor must give the debtor and any other lienholders a written proposal and the debtor and other creditors must accept the terms of the agreement. If the debtor or another creditor with a security interest in the collateral rejects the proposal within 21 days of receiving notice, then the creditor must sell the property. In situations involving consumer goods, the creditor can seize the collateral and discharge the debt without gaining the debtor's consent.

Read More

As Long As I Pay Something per Month Can a Bill Collector Take Me to Court?

When you have several debts that must be paid, it can be difficult to juggle your bills every month. You may be inclined to only send a small amount of money to one of your creditors each month. Although you may be making regular payments, this may not be enough to keep you from being sued by your creditor.

Making Regular Payments

Even if you are paying a regular amount to your creditor each month, you could still be sued for the debt. To avoid getting sued for your debt, you need to set up a payment plan with your debt collector. Unless the creditor agrees to the payment plan, you cannot simply make up your own terms and send in a payment each month to avoid a lawsuit.

Proposing Terms

When you find yourself with a debt, you may want to propose a payment plan to the creditor. Instead of allowing the creditor to set up the terms of the agreement, you can be proactive and try to set the terms yourself. With this process, you can determine how much you can afford to pay and then write a letter to the creditor proposing this as a monthly payment. You can also send a check for your first payment. The creditor can then decide whether these terms are acceptable.

Get It in Writing

If you work out payment terms with a creditor, you should get them in writing. If the creditor accepts your terms or proposes its own terms, you should make sure that you have something in writing. This way, if the creditor does file a lawsuit against you anyway, you can prove that you were living up to your end of the bargain. At that point, the lawsuit may be dismissed and you can keep making your payments.

If Lawsuit Is Filed

If a lawsuit is filed and you do not have terms of writing, you may not be able to do much to stop a judgment from being issued against you. In this case, you may be forced to set up a payment plan with the creditor on its terms. You could also have your wages garnished or a lien placed on your property. Some creditors may levy your bank accounts or property to pay the debt.

Read More

Which Debt to Pay First When You Are Behind on All

Falling behind on debt payments can be the result of job loss, excessive medical expenses, economic downturn or a variety of other issues. Once behind, making a decision on how to prioritize outstanding debt payments can be a confusing and complicated matter. While some debts can wait, others need immediate attention and payment.

Government Debt

Debt obligations related to tax liens, unpaid taxes, student loans or other types of government-related debt should be high on the priority list for repayment. Government agencies such as the Internal Revenue Service have vast resources to utilize in securing repayment of debt. In some cases, this can extend to garnishment of your income, liens on your home or business or even loss of property. At a minimum, partial payment of these debts should be included in debt repayment management to demonstrate a willingness to pay and possibly avoid legal action.

Living Expense Debt

Debt related to monthly living expenses should be given high priority in any debt repayment plan. Preserving your place of residence, medical or health insurance and utility bills will maintain your ability to work and keep a steady stream of income to pay debts. If necessary, consider selling your home or renting a less expensive apartment to reduce living expense debt.

High Interest Debt

High interest debt, such retail store credit cards or credit cards charging a high default interest rate, should be addressed to avoid continuing interest,penalties or over-limit fees. Not only can poor repayment of these debts harm your credit, the addition of late fees and compounded interest can quickly increase your debt obligation.

Court-Related Debt

Any court-related debt must be given high priority in your overall repayment plan. Late or nonpayment of debt such as child support, alimony, traffic fines or court fees can result in the loss of driving privileges, additional penalties or even arrest. In many cases, the court will work with delinquent debtors in an effort to recover money owed to the court and avoid further action.

Auto Loans

While repayment of an auto loan may not seem as important as other debts, it should also be considered an important obligation. Losing access to personal transportation may result in an inability to continue working or searching for a new job. Utilizing public or private transportation may also add to your overall debt issues.

Read More

Credit Collection Statutes of Limitations in Missouri

Every state has its own statute of limitations in place for handling legal proceeding, and those limitations vary across the board. When you're facing the possibility of a creditor taking you to court for an alleged unpaid debt, it's important to know just how long that can hang over your head.

Function

In order to keep the Missouri court system from seeing an influx of lawsuits for alleged unpaid debts, the state places a statute of limitations on filing a new case against a debtor. If there was no statute of limitations in place, then creditors could pursue unpaid debts through the court system years after they accrue. This would not only be detrimental to courtroom dockets, but also to many unsuspecting debtors who thought they paid the money they once owed or someone forgot it a long time ago.

Open Accounts

The statute of limitations on credit collection cases in Missouri applies to two types of agreements. Open accounts, such as credit cards and oral agreements, have a limitation of five years for filing a lawsuit against a nonpaying debtor according to Section 516.120 of the Missouri Revised Statutes. Open accounts also include situations in which the creditor, such as a plumber or a doctor's office, sends out a bill for a product or service. Even though there was no written agreement to pay, the provision of the product or service sets forth the implication for provision of payment.

Written Contracts

The other type of agreement under the statute of limitations for debt collection in Missouri is a written contract. This is, quite plainly, a written agreement between two parties in which one will provide a product or service and the other agrees to pay for it. Such agreements most often apply to services provided by businesses like landscaping, construction or an attorney. The statute of limitations on written agreements in Missouri is 10 years according to Section 516.110 of the Missouri Revised Statutes.

Commencement

The Missouri statute of limitations for debt collection commences on the date of the last viable transaction for the debt. On open accounts, this is the date of the last invoice or partial payment before lawsuit proceedings. For oral agreements, the statute of limitations commences on the date that the creditor provides products or services, or on the date of the last payment. For written contracts, the statute of limitations commences on the date of the signed agreement, or if written into the contract, when the debtor should make the last payment.

Judgment

The intended goal of the creditor in filing a lawsuit is to obtain a Missouri judgment against you. If the creditor does so within the specified time frame and has sufficient proof that you owe the alleged debt, then the court will likely rule in the creditor's favor, which could lead to a garnishment of your bank account or wages.

Read More

Can Credit Card Issuers Reduce Credit?

Credit card issuers regularly review customers' credit limits after checking credit reports or payment history. Sometimes card companies arbitrarily decide to increase the limit, and sometimes they decide to reduce it. it's all perfectly legal because the credit agreement between the debtor and the card company is strictly voluntary. Either side can end the agreement at any time, with the card company reserving the right to reduce or end credit privileges whenever it wants.

Credit Reports

Card companies sometimes reduce credit limits after seeing negative information on credit reports, such as settlements, late payments on other accounts or charge-offs. Negative information on credit reports suggests a debtor is having financial problems, and a card company may reduce the debtor's credit line as a result. A settlement means a debtor resolved an account by paying less than the full balance through debt settlement. A charge-off indicates that the debtor stopped paying an account as agreed, forcing a creditor to close the account. Both are very harmful to credit.

Exposure

Even debtors with great credit scores and a clean credit report could receive notice that the card company is reducing their credit line. Because of financial reasons, some card companies may elect to reduce the overall amount of credit they are extending to customers. This sometimes happens during a deep recession or other tough economic period, when card companies may fear people will start living on credit if they lose their jobs because of layoffs. In 2009, ABC's "Good Morning America" reported how a bank reduced one couple's credit limit from $15,000 to $7,500. The card company later explained to the couple that it made the reduction because of a "current economic crisis."

Effects

A reduction in credit could affect a debtor's credit score. The FICO credit scoring model rewards people who have large credit limits but use only a small portion of it. A person with a $5,000 credit limit who never carries a balance of more than $500 is using credit responsibly. However, the debtor's credit score could theoretically drop if the card company reduces the credit limit on the card to $1,000. That would increase the percentage of credit the debtor is using, a key factor for credit scoring.

Solutions

Debtors with reduced credit limits should simply continue paying their accounts on time while keeping balances low. Writing a letter to the bank asking for a reconsideration is an option for debtors who pay their bills on time. Debtors with credit problems should work on improving their overall credit and not worry about a reduction in credit limit.

Read More

How Large Does a Debt Have to Be to Be Sued?

Creditors have the ability to sue for an unpaid debt. Some debt allows creditors to take immediate action if it is not paid -- most contracts give creditors the right to seize collateral like a house instead of filing a lawsuit. But if there is no collateral for the debt, or if the collateral does not pay off the debt entirely, creditors may sue for the remaining debt owed, even if the debt is only a small amount.

Types of Lawsuits

There are several types of lawsuits common for individual debt. When property is involved, a creditor can place a lien on the property, or a claim to its worth that allows that creditor to file a lawsuit to collect the debt. Contractors that work on property but are not paid can also file liens and lawsuits. Lawsuits not associated with property are more rare, and are generally connected with credit card debts that debtors have not paid back as required. Credit card debt is the most common type of unsecured debt.

Right to Sue

Creditors have a right to sue for debt because of the language they use in their contracts. From this perspective, it does not matter how large a debt is. There is no overarching amount that a debt must be before a creditor can file a suit to collect on it. Credit card debts tend to be smaller while property or car-based debts tend to be larger, but in either case the creditor has the right to sue. The amount of the debt is not usually important from a legal standpoint.

General Practices

Although the amount of the debt may not be very important when it comes to the law, it can be very important to the creditors themselves. Lawsuits can be time-consuming and expensive, so creditors generally will not attempt to collect on a debt that they cannot make money from -- they will usually sell the debt to a collection agency, which will use its own rubric to decide whether or not to sue for the debt. In these cases, it is rare that creditors will sue for less than $1,000 of debt, because the suit would incur more costs than money collected.

Additional Requirements

While the size of a debt can vary, there are laws controlling how long creditors have to sue for an unpaid debt under a contract. No matter how large the debt, if the creditor does not act quickly enough it cannot sue for the debt. Time frames vary widely between states, ranging from three years to 15 years, but after the period is over a lawsuit is no longer possible.

Read More

How Does a Lien Holder Report on a Credit Report?

Any business or individual that owns a security interest in one of your assets is a lien holder. Lenders sometimes attach liens to property before granting you a loan. The asset serves as the debtor's collateral, and it lowers the lender's financial risk because its security interest allows it to repossess its collateral if you don't pay off your debt. Depending on the type of lien and the lender that owns it, the lien could appear on your credit report.

Voluntary Liens

A lien can be either voluntary or involuntary. You accept a voluntary lien when you give a lender permission to attach a lien to one of your assets to qualify for a loan. Two examples of voluntary liens are mortgages and auto loans. Lien holders report your account to the credit bureaus, and the account appears on your credit report as an installment trade line. The trade line reflects how much you owe, which company loaned you the money and how frequently you send payments. The lien holder's trade line includes information about the debt itself, but does not note that the lender possesses a lien against the asset in question.

Involuntary Liens

An involuntary lien occurs when a creditor attaches a lien to your assets by force. If you owe unpaid taxes or defaulted on a federal student loan, the government can automatically attach a lien to personal property and real estate you own. Non-government creditors, such as hospitals and banks, must win a lawsuit against you before attaching a lien to your assets.

Involuntary liens negatively affect your credit rating, and they appear on your credit report in different ways. If a commercial creditor holds a lien against you as the result of a lawsuit, the case shows up on your credit file as a lawsuit judgment. Tax liens do not require a judgment. These liens appear on your credit report as liens rather than lawsuits.

Reporting Process

If you give a creditor permission to place a lien against your property, only the account that necessitated the lien appears on your credit report. The creditor uses reporting software to file regular reports about your account and its payment history with each credit bureaus.

Involuntary liens appear on your credit report after the court dockets the creditor's judgment by officially entering a record of the lawsuit into the county's public records database. From there, the records are uploaded into a national database. The credit bureaus' computer systems regularly scan the national database for new information. When they locate new information, they add the data to the consumer's credit file.

Time Frame

All voluntary and most involuntary liens appear on your credit record as debts rather than liens. If your voluntary lien is not the result of a judgment and you paid the debt on time each month, the positive record of the account remains on your credit report for a minimum of seven years after you pay off the debt.

If your lien is involuntary and the result of a lawsuit, the judgment that created the lien also remains on your credit file for a minimum of seven years, but it will continue to appear until the judgment expires. State laws vary regarding how long judgments are enforceable. Tax liens report for 15 years if left unpaid. Once paid, the credit bureaus remove the tax lien after seven years.

Read More