Deck 24: Creditors Rights

Question 1

A surety is a third party who agrees to be liable to pay a loan only if the debtor actually defaults.

Answer 1

False

Question 2

A creditor will never be able to collect unsecured debt.

Answer 2

False

Question 3

A levy is a court order that authorizes the sheriff to take possession to prevent it from being or transferred by the debtor.

Answer 3

True

Question 4

If a transaction is unsecured what might a creditor request in exchange for offering a line of credit?

A) A perfected security interest
B) A recorded security
C) A personal guaranty
D) A legal guaranty

Question 5

Chelsea and Autumn are principals to ABC Industries. ABC Industries needed a loan but could not pledge collateral. Therefore, Chelsea and Autumn gave a personal guaranty for the loan. Which statement below is correct?

A) Chelsea and Autumn have pledged their personal assets.
B) Chelsea and Autumn have pledged only their interest in ABC Industires.
C) Chelsea and Autumn have no personal liability.
D) Chelsea and Autumn a secured debtors.

Question 6

Jenae, a principal in Maryville Corporation, makes a personal guaranty of a $100, 000 loan for Maryville Corporation. Maryville Corporation defaults on the loan with a balance of $85,000. The total assets of Maryville Corporation are $50,000. Which statement below is correct?

A) Jenae will be personally responsible for the balance of $85,000.
B) Jenae will be personally responsible for the entire loan of $100,000.
C) Jenae and Maryville Corporation will split the loan responsibility in half, leaving each entity owing $42, 500.
D) Jenae will be personally responsible for $35,000.

Question 7

To ensure that a loan is repaid, the creditor may require

A) Only that the loan be secured.
B) Only that the loan be perfected.
C) That the loan is secured by collateral and personal guaranties.
D) Either the loan is secured by collateral or personal guaranties, but not both.

Question 8

Copper Construction rents a large office building from Olive Rental. The lease agreement states that should Copper Construction not pay its monthly lease, the principals will be liable for the rent. This is an example of

A) A secured lease
B) A personal guaranty
C) A creditor guaranty
D) A UCC lien

Question 9

Nate wishes to get a student loan to pay for college. However, his credit history is very brief since he is only 18 years old and lending institutions will not lend to him. The lending institution informs Nate that he must find a third party that will assume his loan only in the event that Nate defaults on the loan. Therefore, given the facts stated above, what option can Nate pursue in order to get a student loan?

A) None.
B) Get a guarantor.
C) Get a surety.
D) File for bankruptcy.

Question 10

A third party that agrees to be primarily liable to pay a loan for another is a(n)

A) Surety
B) Guarantor
C) Obligor
D) Debtor

Question 11

A third party that agrees to be liable to pay a loan only if the debtor actually defaults is a(n)

A) Surety
B) Guarantor
C) Obligor
D) Debtor

Question 12

Wanda is a guarantor to Chloe's car loan. Chloe stops making payments and the car is repossessed. Which statement below is correct?

A) Since the car is repossessed, Wanda has no legal obligation to repay the loan.
B) Wanda will be obligated to repay the loan but will get ownership of Chloe's car.
C) Chloe will be the only person obligated to repay the loan since the car was repossessed.
D) Wanda, as the guarantor is obligated to repay the loan since Chloe defaulted on it.

Question 13

Which of the following are defenses that a guarantor or a surety could use that would relieve them of payment liability?

A) The agreement is not in writing.
B) The subject matter of the loan is destroyed.
C) The cosignor no longer desires to be obligated.
D) The original debtor never had an intention to pay the loan obligation.

Question 14

An interest in property that gives the holder of the lien the right to possession of some of a debtor's property if the debtor fails to perform its obligations is a(n)

A) Perfected interest
B) Lien
C) Personal guarantee
D) Surety

Question 15

Rob borrowed $5000 from Axel and refused to pay him back after they got into a disagreement. Therefore, Axel successfully filed a lawsuit against Rob for repayment of the loan. The judgment was executed to establish a

A) Consensual lien
B) Statutory lien
C) Judicial lien
D) Default lien

Question 16

A lien that arises from a judicial proceeding, most commonly a lawsuit filed by a creditor is called a(n)

A) Consensual lien
B) Statutory lien
C) Default lien
D) Judicial lien

Question 17

Savanna, a creditor, files a complaint against Ashley, a debtor. Ashely fails to answer the complaint. The court will issue a(n)

A) Nolle prosequi
B) Dismissal
C) Default judgment
D) Breach of contract

Question 18

A lien on a debtor's property by virtue of a state statute of common law is a(n)

A) Judicial lien
B) Statutory lien
C) Consensual lien
D) Default lien

Question 19

Christie hires Treadwell Construction to build a deck on the back of her house. After it is completed, she realizes that she really cannot afford the deck and therefore refuses to pay Treadwell for their services. According to a state law, when a contractor works on real estate secures an interest in the labor and materials used to improve the property. What type of lien may Treadwell Construction pursue?

A) Judicial lien
B) Statutory lien
C) Consensual lien
D) Default lien

Question 20

The purpose behind a statutory lien is

A) To simplify to procedure to ensure repayment of the loan.
B) To provide a creditor with some measure of security intended to assure payment.
C) To allow for a fair and just compromise to resolve unpaid debt.
D) To protect the rights of the debtor.

Question 21

Which type of statutory lien covers real estate?

A) Judicial lien
B) Artisan's lien
C) Mechanic's lien
D) Consensual lien

Question 22

Ralph hires Veero Roofing to replace his roof. He pays half of the cost of the job, $5000 at the beginning of the job with the agreement to pay the other half when the job is complete. Shortly after the roofing job is complete Ralph receives the bill for the balance of $5000. Ralph does not pay the bill and in fact avoids Veero Roofing every time they try to contact them which angers the owners of Veero roofing greatly and files for a lien for $15,000. All of the following statements are true except

A) The court will attach a lien to the property for Veero's requested $15,000.
B) The lien is fraudulent and unenforceable.
C) The court may award damages to anyone who was damaged by the fraudulent lien.
D) The court may award damages.

Question 23

In Father & Sons Home Improvement II v. Stuart, the court determined that

A) Father & Sons' contract was not enforceable because it was not in writing.
B) The parties created a consensual lien that was enforceable.
C) Father & Sons committed constructive fraud by misrepresenting facts in the lien.
D) Stuart was required to pay the amount of the mechanics lien.

Question 24

A lien that a property owner voluntarily grants a creditor is a(n)

A) Judicial lien
B) Statutory lien
C) Mechanics lien
D) Consensual lien

Question 25

A mortgage is an example of a

A) Judicial lien
B) Consensual lien
C) Statutory lien
D) Mechanics lien

Question 26

A consensual lien is a lien on what type of property?

A) Personal property
B) Real property
C) Intellectual property
D) Secured property

Question 27

All of the statements about mortgages are true except,

A) A mortgages must be in writing.
B) A mortgage is a matter of public record.
C) A mortgage is typically accompanied by a promissory note.
D) A mortgage required repayment of a loan up to 20 years.

Question 28

Fred enters into a mortgage with First Star Bank. First Star Bank is the

A) Mortgagee
B) Mortgagor
C) Promissory
D) Obligatory

Question 29

Destin has missed several payments on his loan from Willshire Bank. While Whillshire Bank has attempted to work with Destin to pay according to the terms of the loan, they have had no success. Therefore, which of the options below is available?

A) Willshire Bank can file a complaint to have Destin evicted from his house.
B) Whillshire Bank can declare the loan in default and institute a mortgage foreclosure.
C) Whillshire Bank can file a criminal complaint.
D) Whillshire Bank can force Destin into bankruptcy proceedings.

Question 30

List in order the process of collecting an unsecured debt

A) Creditor obtains judgment, enforcement and sale of property
B) Sale of property, creditor obtains judgment and enforcement
C) Discovery, garnishment and levy
D) Citation to discover assets, judicial decree and enforcement

Question 31

When a defendant debtor in a lawsuit is said to be "judgement proof" it signifies

A) Clearly the defendant is not at fault for the debt.
B) The creditor committed fraud in the judicial process and therefore will not be successful.
C) The debtor has no assets which are collectable.
D) The creditor has no assets to pursue judicial actions.

Question 32

Bob secures a judgment against Maria for a loan that she did not repay to Bob. Bob has now become a(n)

A) Obligor
B) Assignor
C) Judgment creditor
D) Statutory creditor

Question 33

Alexander defaulted on a loan from Mississippi Bank. The loan was unsecured, but Mississippi Bank did get a judgment against Alexander. Knowing that Alexander had a bank account at Missouri Bank, he had legal documents served to Missouri Bank which directed the bank to pay the Mississippi Bank the money in Alexander's account. This process is known as a(n)

A) Levy
B) Garnishment
C) Citation to discover assets
D) Foreclosure

Question 34

In order to collect an unsecure debt, the creditor must first

A) Force the debtor into bankruptcy proceedings.
B) Made a demand on the creditor.
C) File criminal charges against the creditor.
D) File a lawsuit as the creditor.

Question 35

Explain the process of recovering an unsecured debt.

Question 36

Why might a creditor want to seek a personal guaranty on a loan that is secured with collateral?

Question 37

What is the difference between a surety and a guarantor? Give an example when one or the other may be used.

Question 38

List and explain the three types of liens available to creditors to collect debt.