Debtor Creditor
Our capitalist society functions on the principle of business and trade between individuals, organizations, and companies. Everything runs smoothly unless there is some interruption to the payments and receipts that “grease the wheels" of commerce. When those situations occur, debtor-creditor law comes into play. Creditors are not all alike, and some have priority when it comes to collecting their debts.Creditors' Rights
When a debtor is in the position of having to liquidate all or part of their assets in order to satisfy creditors, those creditors who have pre-existing liens or charges on land or material goods belonging to the debtor are allowed to exercise those rights ahead of any other creditors. For example, creditor A has a lien on a parcel of land and the owner decides to sell it to pay off his debts. The debtor may not distribute the proceeds of the sale until creditor A has been first reimbursed for the full value of the lien. Other creditors may have priority interest that entitles them to a preferred position. For example, if a debtor owes back taxes, he must pay those taxes before attempting to satisfy other creditors. The U.S. government has a priority interest, one that was granted by Congress when the Federal Tax Lien Act was passed.
Debt Collection
Creditors have other legal venues that can be used to help recover debts as follows:
- Attachment -- Arranging the seizure of a debtor’s property to fulfill debt obligations
- Garnishment -- Deducting some portion of a debtor’s wages in order to gradually recoup a financial obligation
- Receivership -- Petitioning the court to appoint a third party to sell some or all of a debtor’s property and/or possessions, the proceeds of which can be used to partially or completely satisfy an outstanding debt
Debtor-creditor law does not always apply to situations involving bankruptcy. Both common law and state statutory laws have evolved to form the non-bankruptcy debtor-creditor laws now codified. A typical situation of this type occurs when private debt collectors become overzealous in the performance of their duty to the point of defaming the debtor. State courts can apply provisions of Tort law to limit the methods employed by debt collection agencies. Congress has also legislated protective measures for debtors who are unfairly pursued in the form of the Fair Debt Collection Practices Act.
Bankruptcy, in most cases, supersedes state debtor-creditor law with federal statutes that take precedence and apply their own provisions to the debtor and creditor.
Related Links: |
|
