CH 28 Business Law Notes - CH 28 Creditors Rights Remedies Normally creditors have no problem collecting debts owed to them When disputes arise over the

CH 28 Business Law Notes - CH 28 Creditors Rights Remedies...

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CH 28:Creditors’ Rights & RemediesNormally, creditors have no problem collecting debts owed to them. When disputes arise over the amount owed, however, or when the debtor simply cannot or will no pay, What Happens?What remedies are available to creditors when a debtor defaults?Defaults:Fails to pay as promisedLaw Assisting CreditorsLiens-A lienis a claim against a debtor’s property that must be satisfied before the property (or its proceeds) is available to satisfy the claims of other creditors.-Liens may arise under the common law or under statutory law.-Statutory liens include mechanic’s liens, whereas artisan’s liens were recognized at common law. -Judicial liens are those that represent a creditor’s efforts to collect on a debt before or after a judgment is entered by a court.-Liens are a very important tool for creditors because they generally take priority over other claims against the same property. Mechanic’s Liens-When a person contracts for labor, services, or materials to be furnished for the purpose of making improvements on real property but does not immediately pay for the improvements, the creditor can place a mechanic’s lienon the property.-This creates a special type of debtor-creditor relationship in which the real estate itself becomes security for the debt.-Note that state law governs the procedures that must be followed to create a mechanic’s lien.-Generally, the lien holder has to file a written notice of lien against the particular property involved. -The notice of the lien must be filled within a specific time period, measured from the last date on which materials or labor was provided. (Usually 60 to 120 days)-If the property owner fails to pay the debt, the lien holder is entitled to foreclose on the real estate on which the improvements were made and to sell it to satisfy the amount of debt.-The lien holder is required by statute to give notice to the owner of the property prior to foreclosure and sale.-The sale proceeds are used to pay the debt and the costs of the legal proceedings; the surplus, if any, is paid to the former owner.
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Artisan’s Liens-An artisan’s lienis a device created at common law through which a creditor can recover payment from a debtor for labor and materials furnished in the repair of personal property.-In contrast to a mechanic’s lien, an artisan’s lien is possessory. – This means that the lien holder ordinarily must have retained possession of the property and have expressly or impliedly agreed to provide the services on a cash, not a credit, basis.-The lien remains in existence as long as the lien holder maintains possession, and the lien is terminated once possession is voluntarily surrendered – unless surrender is only temporary.
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