1. Remedies of unsecured creditors under state law
How might an unsecured creditor compel payment?
Particular levy or garnishment, but certain assets or wages exempt under state or federal statute.
After bankruptcy filing, void fraudulent transfers.
Can’t seize (conversion) or non-judicially coerce (IIED, wrongful collection).
1.1 Jeff cannot seize based on his unsecured I.O.U.
Legal owner of property is Lisa, so she might sue for conversion or trespass
because Jeff has interfered with her enjoyment of her property and potentially damaged it.
If Lisa sues for conversion, Jeff should
counterclaim for $1k debt, but this counterclaim is not a defense to conversion or trespass.
Should both sides win, Jeff’s
counterclaim might not cover Lisa’s damages.
Jeff might also face criminal charges for larceny/theft or trespass.
no self-help remedy.
Jeff might sue, but this entails several steps.
File, discovery, motions, trial, judgment, appeal, writ, discovery in aid of execution,
execution, sale, distribution.
Jeff’s owed small amount, so suit would be about spite rather than economics.
If Lisa well-advised, she
knows that odds of court near zero.
However, small claims court option would reduce cost of this process.
According to studies,
doctors, hospitals, banks, or credit cards use small claims, not Jeff.
The irony is that small claims court, designed to aid small players,
the tool of big creditors against weak debtors.
Jeff thought he should seize the furniture; ordinary citizen faces steep knowledge
barrier, and likely can’t frame his claim.
1.2 Creditor couldn’t name, blame, and shame debtor into payment, so stole debtor’s lobster.
Creditor violated law and charges filed,
so offer forgiveness of full debt ($11k deficiency after $19k offset from converted lobsters) in exchange for dropped charges.
Second, visit DA to push for criminal charge against debtor, who perhaps defrauded creditor (and other lobstermen like him) into
delivery of goods that debtor never intended to pay for.
DA likely to decide that this issue is civil, not criminal, but in an election
year, never can tell.
1.3 Debtor not in default, so creditor can’t sue for repayment.
Creditor never included right to give business advice in loan contract,
so no leverage.
Creditor should have negotiated a better contract.
1.4 What are debtor’s assets?
You might sue and then pursue discovery in aid of execution.
Unfortunately, this is expensive and tips
off debtor to the very assets he needs to hide.
Instead, ask former employees about assets, visit site yourself, or search credit
reports or public records to discover other property in the state owned by debtor.
Learn what debtor has of value before
attempting discovery in aid of execution.
Cheap but dangerous (exemptions may be claimed) alternative to send sheriff to
debtor’s house to start seizing things.
1.5 Always a hurry, because Knopf can sell for reasonable value and wire the proceeds and fly himself to the Bahamas.