Man loaned money to friend, debt still unpaid. What can be done?
Debt collection is a specific field of legal endeavor. Experinced collection attorneys generally have acquired expertise in civil procedure, debtor-creditor, commercial, and real-estate law, as well as both federal and state fair-debt-collection-practice acts. In this response, I have included general information about collection law, bankruptcy law, and a link to a website of a Brooklyn debt-collection law firm that contains general information about debt-collection activities. Please read these materials carefully for the general information they contain regarding debt collection law and practices.
Debt Collection: Law & Legal Definition.
Debtor-creditor law governs situations where one party is unable to pay a monetary debt to another. There are three types of creditors. First are those who acquire a lien through statute, agreement between the parties, or judicial proceedings against a particular piece of property. This property (or proceeds from its sale) must be used to satisfy the debt to the lien-creditor before it can be used to satisfy debts to other creditors. Once a lien has been created state statutory law governs how the lien is executed against the debtor's property. The sale of property subject to a lien to satisfy the debt is also governed by state statutory law. The type of property that may be used to satisfy a debt is governed by state and federal legislation, such as the Consumer Credit Protection Act. Secondly, a creditor may have a priority interest. A priority arises through statutory law. If a creditor has a priority his debt must be paid ahead of other creditors when the debtor becomes insolvent. The third type of creditor is one who has neither a lien against the debtor's property or holds a statutory priority.
Non-bankruptcy debtor-creditor law is governed mainly by state statutory and common law. Harrassment, defamation, or other unfair practices in attempts at debt collection may be curbed by tort claims in state court. States also regulate debt collection through statute. Congress has enacted the Fair Debt Collection Practices Act to regulate some debt collectors.
Creditors use judicial and statutory processes to have debts satisfied. Attachment is a limited statutory remedy whereby a creditor has the property of a debtor seized to satisfy a debt. Garnishment allows a creditor to collect part of a debt (for example wages) to satisfy the obligation. Replevin allows a creditor to seize goods, such as a security interest, that he or she has a property interest in, to satisfy the debt. Receivership involves the appointing of a third party by a court to dispose of the debtor's property in order to satisfy the debt.
A debtor may attempt to fraudulently convey a piece of property to keep it out of the creditos' hands. State laws seek to prevent this type of property transfer. Many states have adopted the Uniform Fraudulent Conveyances Act or its successor, the Uniform Fraudulent Transfer Act.
Every state has laws, which vary by state, governing the time in which a person or entity can file suit to collect a debt. Depending on state law and whether the debt is the result of a written contract, oral contract, open account,or promissory note, a creditor or debt collector gives up his right to file suit to collect a debt after a period of anywhere from 2 to 15 years from the time the debt became delinquent. Local laws should be consulted for specific requirements in your area.
Fair Debt Collection Practices Act: Law & Legal Definition.
The Fair Debt Collection Practices Act is a federal statute aimed at curbing abusive practices in debt collection.
What debts are covered?
Personal, family, and household debts are covered under the Act. This includes money owed for the purchase of an automobile, for medical care, or for charge accounts. Who is a debt collector?
A debt collector is any person, other than the creditor, who regularly collects debts owed to others. Under a 1986 amendment to the Fair Debt Collection Practices Act, this includes attorneys who collect debts on a regular basis.
How may a debt collector contact you?
A collector may contact you in person, by mail, telephone, telegram, or Fax. However, a debt collector may not contact you at unreasonable times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves.
Can you stop a debt collector from contacting you?
You can stop a collector from contacting you by writing a letter to the collection agency telling them to stop. Once the agency receives your letter, they may not contact you again except to say there will be no further contact. The agency may notify you if the debt collector or the creditor intends to take some specific action.
May a debt collector contact anyone else about your debt?
If you have an attorney, the debt collector may not contact anyone other than your attorney. If you do not have an attorney, a collector may contact other people, but only to find out where you live and work. Collectors usually are prohibited from contacting such permissible third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney that you owe money. What must the debt collector tell you about the debt?
Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.
May a debt collector continue to contact you if you believe you do not owe money?
A collector may not contact you if, within 30 days after you are first contacted, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed. What types of debt collection practices are prohibited?
Harassment. Debt collectors may not harass, oppress, or abuse anyone. For example, debt collectors may not: use threats of violence or harm against the person, property, or reputation; publish a list of consumers who refuse to pay their debts (except to a credit bureau); use obscene or profane language; repeatedly use the telephone to annoy someone; telephone people without identifying themselves; advertise your debt.
False statements. Debt collectors may not use any false statements when collecting a debt.
For example, debt collectors may not:
• falsely imply that they are attorneys or government representatives;
• falsely imply that you have committed a crime;
• falsely represent that they operate or work for a credit bureau;
• misrepresent the amount of your debt;
• misrepresent the involvement of an attorney in collecting a debt;
• indicate that papers being sent to you are legal forms when they are not;
• indicate that papers being sent to you are not legal forms when they are.
Debt collectors also may not state that:
• you will be arrested if you do not pay your debt;
• they will seize, garnish, attach, or sell your property or wages, unless the collection
• agency or creditor intends to do so, and it is legal to do so;
• actions, such as a lawsuit, will be taken against you, which legally may not be taken, or which they do not intend to take.
Debt collectors may not:
• give false credit information about you to anyone;
• send you anything that looks like an official document from a court or government agency when it is not;
• use a false name.
Unfair practices. Debt collectors may not engage in unfair practices when they try to collect a debt. For example, collectors may not:
• collect any amount greater than your debt, unless allowed by law;
• deposit a post-dated check prematurely;
• make you accept collect calls or pay for telegrams;
• take or threaten to take your property unless this can be done legally;
• contact you by postcard.
Bankruptcy: Law & Legal Definition.
Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors.The philosophy behind the law is to allow the debtor to make a fresh start, not to be punished for inability to pay debts. Bankruptcy law allows certain debtors to be discharged of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full. Some bankruptcy proceedings allow a debtor to stay in business and use business income to pay his or her debts.
Bankruptcy law is federal statutory law contained in Title 11 of the United States Code. Congress passed the Bankruptcy Code under its Constitutional grant of authority to "establish. . . uniform laws on the subject of Bankruptcy throughout the United States." See U.S. Constitution Article I, Section 8. States may not regulate bankruptcy though they may pass laws that govern other aspects of the debtor-creditor relationship. A number of sections of Title 11 incorporate the debtor-creditor law of the individual states.
Bankruptcy proceedings are conducted in the United States Bankruptcy Courts. These courts are a branch of the District Courts of The United States. The United States Trustees were established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings. Proceedings in bankruptcy courts are governed by the Bankruptcy Rules which were promulgated by the Supreme Court under the authority of Congress.
A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors. After a bankruptcy proceeding is filed, creditors generally may not seek to collect their debts outside of the proceeding. The debtor is not allowed to transfer property that has been declared part of the estate subject to proceedings. Furthermore, certain pre-proceeding transfers of property, secured interests, and liens may be delayed or invalidated. Various provisions of the Bankruptcy Code also establish the priority of creditors' interests.
There are two basic types of Bankruptcy proceedings. A filing under Chapter 7 is called liquidation. It is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. Not dischargeable in bankruptcy are alimony and child support, taxes, and fraudulent transactions. Filing a bankruptcy petition automatically suspends all existing legal actions and is often used to forestall foreclosure or imposition of judgment. After 45 or more days a creditor with a debt secured by real or personal property can petition the court to have the "automatic stay" of legal rights removed and a foreclosure to proceed. When the court formally declares a party as a bankrupt, a party cannot file for bankruptcy again for nine years.
Chapter 11 bankruptcy allows a business to reorganize and refinance to be able to prevent final insolvency. Often there is no trustee, but a "debtor in possession," and considerable time to present a plan of reorganization. The final plan often requires creditors to take only a small percentage of the debts owed them or to take payment over a long period of time. Chapter 13 is similar to Chapter 11, but is for individuals to work out payment schedules.
Under Bankruptcy Rules Rule 7001, an adversary proceeding may be filed in a debtor's bankruptcy action for certain specific reasons. An adversary proceeding may be filed to recover money or property of a debtor, for the sale of a debtor's property by a co-owner, to object or revoke a discharge, to revoke the confirmation of a reorganization plan, to determine the dischargeability of a debt, to obtain an injunction or other equitable relief, and for other matters.
Creditors also may initiate adversary proceedings to determine the validity or priority of a lien, to determine the validity of a debt, to obtain an injunction, or to subordinate a claim of another creditor. The debtor in possession may institute an adversary proceeding to recover money or property for the estate. A creditors' committee may be authorized by the bankruptcy court to pursue certain actions which the debtor has failed to pursue.
The bankruptcy rules consist of nine distinct parts with Part VII governing adversary proceedings and Part VIII governing appeals. The court that will hear an appeal and the appropriate standard of review depends on which court issued the order or judgment that is appealed. Appeals of final judgments, orders, and decrees of the bankruptcy court are taken to the district court or the bankruptcy appellate panel established by the district court.14 Final decisions, orders, and decrees of the district court, as well as appellate decisions rendered under 28 USC 158(a) are heard by the court of appeals
Bankruptcy is a legal proceeding, guided by federal law, designed to address situations where a debtor—either an individual or a business—has accumulated obligations so great that he or she is unable to pay them off. Bankruptcy law does not require filers to be financially insolvent at the time of the filing. Rather, it applies a criterion in which approval is granted if the filer is "unable to pay debts as they come due." Once a company is granted bankruptcy protection, it can terminate contractual obligations with workers and clients, avoid litigation claims, and explore possible avenues for reorganization.
Bankruptcy laws are designed to distribute the debtor's assets as equitably as possible among his or her creditors. Most of the time, with some exceptions, bankruptcy also frees the debtor from further liability. Bankruptcy proceedings may be initiated either by the debtor—a voluntary process—or may be forced by creditors.
According to the Administrative Office of the U.S. Courts, in Fiscal Year 2005, 1.637 million bankruptcies were filed in federal courts, up from 1.277 million in FY 2000. Of these 32,406 were business bankruptcies (down from 36,910 in FY 2000). Bankruptcy statistics are dominated by personal filings; these have been increasing sharply in recent years due in large part to rapidly increasing levels of personal indebtedness.
This phenomenon has been responsible for a major overhaul of bankruptcy law in 2005. The legislation, known as The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was signed into law on April 20, 2005 and became effective October 17 of the same year. The law was designed, in part, to eliminate the practice of serial bankruptcy filings by individuals to escape carelessly accumulated debt.
Types of bankruptcy are named after chapters of the bankruptcy code. Individuals may file under the provisions of Chapter 7 or Chapter 13.
CHAPTER 7 BANKRUPTCY
Under Chapter 7 bankruptcy law, all of the debtor's assets—including any unincorporated businesses that he or she may own—are fully liquidated. Assets deemed necessary to support the debtor and his/her dependents, such as a residence, may be exempted. This "liquidation bankruptcy" is the most common filing for business failures, accounting for about 75 percent of all business bankruptcy filings.
The federal bankruptcy court develops a full listing of the debtor's assets and liabilities. The court identifies assets deemed to be exempted, such as a family home, and then divides remaining assets among the various creditors; a trustee is appointed to oversee distribution of proceeds. Unpaid taxes receive top priority; secured creditors are usually considered next. After all assets are liquidated and distributed, the debtor is freed of all further obligations. John Pearce II and Samuel DiLullo note the pluses and minuses of this procedure in Business Horizons as follows: "This type of filing is critically important to sole proprietors or partnerships, whose owners are personally liable for all business debts not covered by the sale of the assets unless they can secure a Chapter 7 bankruptcy allowing them to cancel any debt in excess of exempt assets. Although they will be left with little personal property, the liquidated debtor is discharged from paying the remaining debt." The debts thus discharged exclude certain items which the debtor is required to pay despite the Chapter 7 filing. These include child support, alimony, recent income taxes, and student loans guaranteed by government.
The recently passed BAPCPA limits the ability of a debtor to file under Chapter 7. The debtor can only file for "liquidation bankruptcy" if his or her median income is below the state median income; if it is higher, and the person can afford to pay out $100 monthly to liquidate debt, he or she may only file under Chapter 13. The new law also mandates credit counseling ahead of filing in a government-approved program.
CHAPTER 13 BANKRUPTCY
An individual or business filing under Chapter 13 turns over his or her finances to the bankruptcy court and is then obliged to make payments at the court's direction. Whereas Chapter 7 is characterized by full discharge of debt, Chapter 13 results in a repayment plan. Debtors prefer Chapter 7 because it usually allows them to hold on to their equity but, after a brief time, all obligations except such as listed above (child support, alimony, etc.) are eliminated. Courts prefer filings under Chapter 13 if the individual has any ability to satisfy the debt over time, and BAPCPA now codifies this leaning of the courts by defining a "threshold"—the state median income and an ability to pay $100 a month toward the indebtedness.
Provisions of BAPCPA have made Chapter 13 filings more burdensome for filers. Under the old dispensation, Chapter 13 filers enjoyed more protection against legal actions by litigants intending to recover funds or to impose new costs. Filers were protected against evictions; under BAPCPA they no longer are. They may lose their driver's licenses. They must continue to respond to divorce and child-support actions. BAPCPA has also moved family members with financial claims (e.g., for child support, alimony) to the first rank of recipients, ahead of secured creditors. Like Chapter 7 filers, Chapter 13 filers are also required to participate in mandatory financial management education.
CHAPTER 11 BANKRUPTCY
In a bulletin titled Corporate Bankruptcy, the U.S. Securities and Exchange Commission summarizes why corporations file for bankruptcy under Chapter 11: "Most publicly-held companies will file under Chapter 11 rather than Chapter 7 because they can still run their business and control the bankruptcy process. Chapter 11 provides a process for rehabilitating the company's faltering business. Sometimes the company successfully works out a plan to return to profitability; sometimes, in the end, it liquidates. Under a Chapter 11 reorganization, a company usually keeps doing business and its stock and bonds may continue to trade in our securities markets."
Companies generally turn to Chapter 11 protection after they are no longer able to pay their creditors. Once a company has filed under Chapter 11, its creditors are notified that they cannot press suits for repayment (although secured creditors may ask the court for a "hardship" exemption from the general debt freeze that is imposed). Creditors are, however, permitted to appear before the court to discuss their claims and provide data on the debtor's ability to reorganize. In addition, unsecured creditors may appoint representatives to negotiate a settlement with the debtor company. Finally, creditors who feel that the debtor company's financial straits are due to mismanagement or fraud may ask the court to appoint an examiner to look into such possibilities.
Once a company asks for Chapter 11 protection, it provides the court, lenders, and creditors with a wide range of financial information on its operations for analysis even as it continues with its day-to-day operations; during this period, major business expenditures must be approved by the court. The business will also prepare a reorganization plan, which, according to CPA Journal contributor Nancy Baldiga, "details the amount and timing of all creditor payments, the means for effectuating such payments (such as the sale of assets, refinancing, or compromise of disputed claims), and the essential legal and business structure of the debtor as it emerges from Chapter 11 protection." Another important component of this plan is the disclosure statement, which presents projected business fortunes, proposed financial settlements with creditors and equity holders, and estimates of the liquidation value of the company. "The information included in the disclosure statement is critical to a creditor's evaluation of the reorganization plans offered for acceptance, as compared to possible other plans or even liquidation," wrote Baldiga.
The reorganization plan, if approved by the court and a majority of creditors, becomes the blueprint for the company's future. Principal factors considered in determining the feasibility of reorganization proposals include:
• Status of the company's capital structure
• Availability of financing and credit
• Potential earnings of the company after reorganization
• Ability to make creditor payments
• Management stability
• General economic conditions in the industry
• General economic conditions in geographic regions of operation
BAPCPA has also introduced a number of changes governing Chapter 11 filings related to leases, payments made immediately prior to the bankruptcy filing, improved ability of creditors to reclaim products, caps on wage claims applicable to the pre-filing period, and other matters.
Please see the information at the following links: