Debtor-Creditor Master Notes[12].docx

Table of Contents A. Leverage 5 B. Credit Bureaus 6 C. Fair Credit Reporting Act 6 D. Usury Laws 6 E. Wisconsin Consumer Act 7 F. Invasion of Privacy 9 G. Fair Debt Collection Practices Act 12 H. Lender Liability 17 Lender Misrepresentation 17 I. Wisconsin Collections Law 19 1. Judgment (Chapter 806) 19 2. Execution (Chapter 815) 21 3. Attachment (Chapter 811) 24 4. Replevin (Chapter 810) 25 5. Garnishment 26 5.1. Wage Garnishment 31 6. Judgment Lien (Chapter 806) 32 7. Family Debts 33 8. Voluntary Interest 37 9. Statutory Liens 38 J. Protected Assets 38 K. The Aging Asset 39 L. Priority 41 M. Decedent’s Estate 42 N. Supplementary Proceedings (Chapter 816) 44 O. Exemptions (815.18) 50 Exemption Questions 51 The Homestead Exemption: 56 Key Takeaways from Exemptions 57 P. Fraudulent Transactions 60 1. Introduction 60 Rhoades case (lawyer siblings) 62 2. Leveraged Buyouts 63 Questions 64 Bay Plastics v. BT Commercial Corp. (In re Bay Plastics) 65 Q. Chapter 128 Receivership 66 Three types of receivership in Wisconsin: 67 Text Questions: 68 In Re Delta Group Questions 68 BNP Paribas v. Olsen’s Mill, Inc. Questions 69 Federal Bankruptcy Textbook 69 Chapter 7 Liquidation 69 I. Introduction 69 Pages 1-7 70 Pages 13-18 70 Pages 22-36 70 Pages 237-239à Chapter 7 Bankruptcy 72 1. Who may be a debtor? 73 Pages 107-108 73 Pages 97-100 Commencing the Bankruptcy Case 74 Consumer Bankruptcy Flowchart 76 Above Median Income Means Test 76 2. The Means test 76 Pages 239-242à Explain form 22A-2 76 In Re Ritchie, 35 B.R. 569 77 II. The Automatic Stay 79 1. The Scope of the Stay 79 Pages 127- 129 79 Questions: The Automatic Stay 79 Problems 5-1 à 5-5 80 Citizens Bank v. Strumpf 80 2. Exceptions to the Stay 362 (b) 81 Pages 136-138 81 In Re Harris 310 B.R. 395 82 Taggart v. Lorenzen 139 S.Ct. 1795 (Reasonable Basis Rule) 82 City of Chicago v. Fulton 141 S.Ct. 585 (2021) 83 3. Relief from the Stay 362(d) 84 Pages 142-145 84 Adequate Protection §361 86 III. Property of the Estate 87 1. What is included? 87 Pages 59-65 87 Pages 551-553à Leases & K’s in Bankruptcy 89 Pages 63-64 Retirement Plan Exclusions from the 90 2. Avoiding Powers (5 Total) 90 Pages 495- 498 90 Problem 11-1: Recovery from what and from whom? 91 Pages 520-522 91 (1) Preferenceà Avoiding Power 1 91 (2) The Strong-arm power, Pages 535-536 94 (3) Fraudulent Transfers 95 Problems 11-6 through 11-10 96 (4) Using State Avoidance Laws 97 (5) Avoiding Untimely Recorded Transfers 98 Preference exceptions (or defenses) 547(c) 99 Week 8 Takeaways: 100 IV. Debtor’s Duties 100 Explain §521 and §506(a)(2) IMPORTANT 100 V. Exemptions 101 1. What is exempt? 101 Explain §522(b) Debtors must choose State or Federal Exemptions 102 2. Exemption Planning 103 In Re Tveten (pg, 196) 103 In Re Vangen 33 B.R. 241 103 3. Compare Wisconsin exemptions vs. §522(d) Federal exemptions—> LOOK to the comparison sheet. 105 Wittman v. Koening 2016 U.S. App. Lexis 13577 (7th Cir.) 105 Clark v. Rameker 134 S. CT. 2243 (Inherited IRA can’t be out into a retirement account) 106 In re Polis (First look) 107 4. Can Liens be removed from exempt property? 107 5. Limits of exceptions 109 VI Claims 110 1. Unsecured Claims 110 101(5) Defines “Claims” 110 Ohio v. Kovacs 111 Raleigh v. Illinois Department of Revenue à 120 S.Ct. 1951 113 2. Disallowance of Claims 114 3. Estimation of Claims 115 Explain 502(c) 115 In Re Polis 115 4. Secured Claims 117 Pages 81-86 117 Explain 506(a) Bifurcaton 117 Lien Stripping 506(d) 118 Dewsnup v. Tim Pg. 87 118 Bank of America v. Caulkett 135 S. CT. 1995 119 5. Priority Claims 120 Pages 158-160 120 Explain 507(a) Priorities 120 Explain 503(b) Administrative Expenses 120 VII Discharge 121 1. The Debtor’s Discharge 121 Problem 3-1 (1&2) 121 Problem 3-2 122 Explain 525—Discriminatory Treatment 122 Problem 3-5 122 Problem 3-6 Discharge, and what the government can do 122 Problem 3-7 Discharge, and what an employer can do 122 ——————————————————————————————————————— 123 Page 57 Questions about Burnett 124 In Re Thongta 124 “The Phantom Discharge”524(a)(3) 124 Explain 727(a) Objections to the ENTIRE discharge 125 727(a) Objections to Bankruptcy 125 (Mc Williams) 126 Union Planter’s Bank v. Connors 283, F.3d 896 128 2. Nondischargeable Debts 129 Explain: §727(b) 129 §523 Exceptions to Dischargeà The kinds of debt that are not covered by the bankruptcy discharge 129 §523 Debts Excepted from Discharge 129 523(c)(1)à 2,4,6 Exception for fraud, embezzlement, and tort victim 130 Bank. Rule 4007à The timeframe for filing the complaint under 523(c) 130 Ch. 7 First Steps 133 Discharge Rules Cases 133 3. §524 Reaffirmation Agreements 139 4. §722 Redemption 142 5. Ride Thru 143 Chapter 13 Payment Plan 146 A. Chapter 13 Overview 146 Requirements for a Chapter 13 plan Section 1322(a): 146 B. Chapter 7 vs. Chapter 13 147 C. Unsecured Creditors 149 1. Best Interests Test 149 2. Disposable Income 149 3. Claim Classification 153 D. Payments to Secured Creditors 155 Home Loans 155 Personal Property Loans 1325(a)(*) Hanging Paragraph 157 Certain vehicles and other loans 157 E. Other Requirements 159 Good faith 159 Plan Modification 160 … = Points to Review \A. Leverage the use of exiting power, info, and material to obtain a successful result. Ex., the ghostbusters threatening to release the ghosts back into the hotel unless they were paid the money they were owed. F 90 OR MORE IS GOING TO THE OWNERS OF THE BUSINESS, THEN ITS NOT PROTECTED BUT IF THE MONEY IS GOING TO THE EMPLOYEES, THEN THE MONEY WILL BE 100% EMEMPT IN BANKRUPTCY B. Credit Bureaus Three major players, (1) Equifax, (2) Transunion, and (3) Experian. “the problem with Credit bureaus is that they were created by the creditors”… the bureaus became so powerful due to lack of access and lack of accountability to customers or fiduciary duty. Organizations that “compile information on people's creditworthiness and publishes it in the form of reports that are used chiefly by merchants and service-providers who deal directly with customers Problems arose: (1) Lack of access and (2) Lack of ability to correct errors C. Fair Credit Reporting Act 2 Main Purposes (1) provided people a means to see their credit reports as well as (2) a mechanism to make changes for errors on the report. QUESTIONS: What do you think prompted Congress to pass the FCRA? Privacy (Orwellian) issues Potential abuses that might arise such as untrue reports of delinquency of payment when in fact the person had a valid reason to refuse to pay a seller where there is legitimate dispute between the parties. Credit bureaus may also fail to update information or may be tardy in correcting an error or in informing others of one. Information may be based upon hearsay, value judgments, or disputes, without the consumer's having an opportunity to put his version of the story into the record. FCRA is focused on confidentiality, accuracy, relevancy, and proper utilization of such information What permits Congress to pass a law that deals with credit reports? D. Usury Laws Laws that regulate interest rates Not many of them left because of the case Marquette Nat. Bank of Minneapolis v. First of Omaha which held that if a bank is incorporated under federal law, then it does not have to adhere to state usury laws Therefore, states got rid of many of their usury laws so that banks would not all incorporate federally and would stay within the states. E. Wisconsin Consumer Act Only state statute in the country to be by the state, for citizens of that state. The Act has two primary purposes--(1) to require merchants to supply certain disclosures to consumers and (2) to regulate merchant debt collection conduct. Consequences for violating the WCA include: paying the debtor's attorneys' fees; forgiving the balance due on the debt; reimbursing the debtor for all monies paid to the merchant; and permitting the debtor to keep the contracted-for item free of charge Questions When does the WCA apply to a transaction? For the Statute to apply à There must be both a merchant and a consumer When the six essential elements are satisfied: The transaction must be a consumer transaction that can be a cash or a credit transaction Second, the transaction must involve a consumer that is contracting for property, services, or credit for personal, family, or household purposes. Third, the transaction must be between a customer and a merchant. It is important to note that the Wisconsin Consumer Act definition of a merchant is significantly different than the UCC definition of a merchant. Fourth, the subject matter of the transaction must be real or personal property, services, or money. The definitions and interpretations of personal property and services subject to the Wisconsin Consumer Act are so broad as to be nearly limitless. Fifth, the transaction must involve a grant of credit by the merchant to the customer. Significant litigation has evolved over the meaning of that phrase. Sixth, the contract between the merchant and the customer must either permit the customer to pay in installments or permit the merchant to charge a finance charge. Can a creditor seek to collect from a spouse of the debtor? Because Wisconsin is a marital property state (of which there are 11) the answer is yes. Yes, so long as a debt collector is not otherwise in violation of sub. (1) (j) with respect to a consumer credit transaction with a debtor, it is not a violation of this section to send a billing statement or other notice of account to, or to collect the amount due on the account from, the spouse of that debtor, if notice to the debtor's spouse is provided under s. 766.56. Can also collect from a spouse even if the other spouse did not know about the debt incurred. Does intent need to be proven for a WCA violation? No-- according to Kett v. Community Credit Plan it does not matter that there was no intent because the law is the law. Basically strict liability How many times a month can a creditor contact a debtor without committing a WCA violation? No hard and fast number, it is a case-by-case basis, but Hornik found that four or five calls per month is permissible. 69 calls over a 19-month period = ABOUT 3.5 IS OK ALL IN ALLà about one call per week is where things top out NOTE: If client is being harassed with calls, advise client to keep a log of when the creditor agency has called. Under the WCA, must a creditor report a debt as disputed when that unpaid debt is reported to a credit reporting agency? Yes according to Turner, the creditor does have to report the disputed status… if they don’t then it is a WCA violation. What damages are available to a debtor for a creditors WCA violation? What's noteworthy about the statutory damages? According to 427.105 Remedies… (1) A person injured by violation of this chapter may recover actual damages and the penalty provided in s. 425.304 (which is at least $100); but notwithstanding any other law actual damages shall include damages caused by emotional distress or mental anguish with or without accompanying physical injury proximately caused by a violation of this chapter The Noteworthy Partà Usually, emotional distress damages require some physical distress caused to that particular plaintiff, but that is not the case here. Can the debtor recover his/her attorney's fees for a WCA violation by the creditor? 425.308 yes you can recover reasonable attorney’s fees F. Invasion of Privacy The right to privacy is the right to be let alone in the absence of some reasonable public interest in a person’s activities. Celebrities do not count Invasion of the right to privacy can be the basis for a lawsuit against either a person or an entity violating that right. Not mentioned in the Constitution, but the Court has interpreted many of the amendments as creating a federal right to privacy. Wisconsin Invasion of Privacy Statute (Know the four types) WIS. STAT. § § 995.50(2)(a) Intrusion upon the privacy of another of a nature highly offensive to a reasonable person, in a place that a reasonable person would consider private or in a manner which is actionable for trespass. WIS. STAT. § § 995.50(2)(b) The use, for advertising purposes or for purposes of trade, of the name, portrait or picture of any living person, without having first obtained the written consent of the person or, if the person is a minor, of his or her parent or guardian. LIVING PERSON’S PERSON WIS. STAT. § § 995.50(2)(c) Publicity given to a matter concerning the private life of another, of a kind highly offensive to a reasonable person, if the defendant has acted either unreasonably or recklessly as to whether there was a legitimate public interest in the matter involved, or with actual knowledge that none existed. It is not an invasion of privacy to communicate any information available to the public as a matter of public record. WIS. STAT. § § 995.50(2)(d) Conduct that is prohibited under s. 942.09, regardless of whether there has been a criminal action related to the conduct, and regardless of the outcome of the criminal action, if there has been a criminal action related to the conduct. Revenge Nudes Does one have both a Federal and State right to privacy in Wisconsin? Yes Non-public individuals have the right to privacy under both state and federal law Since the federal right of privacy is not rooted in statute and has not been codified, one’s federal right of privacy is an evolving and amorphous concept. Many state legislatures, such as WI have passes laws that protect an individual’s right of privacy. By rooting the right in statute, the concept of right of privacy under state law is much more concrete than the federal right of privacy. Wisconsin Statute § 995.50 recognizes the right of privacy; provides a statutory basis for invasion of privacy tort claims; and ensures that the developing common law will continue to afford further privacy protection. Under Wisconsin statutory law, an individual has a right of privacy from: (a) intrusion by another in a place that a reasonable person would consider private; (b) the use of one’s name or a picture for advertising or purposes of trade; (c) Publicity given to a matter concerning the private life of another; and (d) any representations depicting nudity. Remedies available for violating one’s right to privacy: Equitable relief to prevent or restraint he invasion and compensatory damages based either on the plaintiff’s loss or the defendant’s unjust enrichment Attorney’s fees are recoverable in reasonable amounts. Religious affiliation = not available for recovery According to Briggs & Stratton Corp. v. National Catholic Reporter Publishing Co. 978 F. Supp 1195 (1997), A person's religious affiliation, standing alone, is not so private that publication would offend a reasonable person and constitute an invasion of privacy under sub. Public Records The right to privacy law does not affect the duties of custodians of public records under s. 19.21. 68 Atty. Gen. 68. Wisconsin courts have also recognized that, when determining whether to respond to an open records request, privacy interests can outweigh public interest if revealing the information would threaten personal privacy or safety. Records that are exempt from public records requests include government e Publicity: Disclosure of private information to one person or to a small group does not, as a matter of law in all cases, fail to satisfy the publicity element of an invasion of privacy claim. Talking to neighbor over a fence counts as “publicizing” Whether a disclosure satisfies the publicity element of an invasion of privacy claim depends upon the particular facts of the case and the nature of plaintiff's relationship to the audience who received the information. Poston v. Burns Facts Dispute between 2 sets of neighbors in adjacent homes about 18 feet apart Burns recorded Postons to substantiate noise complaints to police who then issued Karen Postons a ticket for disorderly conduct The Poston’s moved away then filed a lawsuit against Burns alleging violation of privacy by electronically eavesdropping on their private property and home as well as recording conversations without their privilege or information Burns testified that the recordings were made when the recorder was placed in the window of their bedroom. QUESTIONS: What statutory sections were allegedly violated by the defendants? They initially tried section 955(2) (a) and (c), but by the time it went to trial, the attorney chose to stick to (a). Which section ultimately went to trial? WIS. STAT. § § 995.50(2)(a) How did the plaintiffs' claim there was an invasion of privacy of that section? They claimed that because the recording device picked up personal conversations within the Postons’ home, so they asserted a “place” violation.” How did the lower court rule on the plaintiffs' claim? Did the appeals court affirm the lower court ruling? If not, why not? No because the Postons, as lay witnesses, established no competency to testify about the recording capabilities of digital recorders or microphones, or other rational basis for the "belief" they expressed and which formed the factual basis for their case. No- The recording device was located in the harassee’s home. If it were in the harasser’s home, then that would be a “place” violation. What's necessary in order to establish a "place" invasion of privacy? “Place is established in a geographical location that a reasonable person would consider private or in a manner which is actionable for trespass. G. Fair Debt Collection Practices Act A creditor can seek to collect an outstanding debt by: direct communication with the debtor suing the debtor trying to seize or sell property securing the debt or by hiring a debt collection service Function of the FDCPA To provide debtors a means to challenge improper debt collection practices as well as determine the validity and accuracy of asserted debts. QUESTIONS: Why did Congress pass the FDCPA? Because it found that “[a]busive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.” How is Congress able to pass a federal law dealing with debt collection? Commerce Clause à Interstate commerce. Abusive debt collection practices occur through interstate commerce and through means and instrumentalities of such commerce. Even where abusive debt collection practices are purely intrastate in character, they nevertheless directly affect interstate commerce. When is the FDCPA applicable to a transaction? There must be (1) a Consumer and (2) A 3rd party Debt collector Where is the venue for a FDCPA violation action? If real property is involved, venue is proper in the judicial district where the real property is located; or (2) in the case of an action not described in above, only in the judicial district or similar legal entity-- in which such consumer signed the contract sued upon; or in which such consumer resides at the commencement of the action. What damages are available for a FDCPA violation? Any actual damage and other damages that the court may allow as long as it is less than $1,000. Are attorney's fees recoverable by the debtor? Yes— as reasonably calculated by the court This is an initiative by the legislation to incentivize attorneys to bring these types of actions where e the settlements may not be so What is the bona fide error defense? A debt collector may not be held liable in any action brought under 15 USCS §§ 1692 if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error Does the WCA have a bona fide error defense? Yes sit does, under Wis. Stat. 425.301 Note- any Wis. Stat. 420… is going to be WCA What is the statute of limitations for a FDCPA violation? One year from the time of the offense Fair Debt Collection Practices Act Case Illustrations Heintz v. Jenkins Questions Takeawayà Lawyers have to comply with both the FDCPA and the WCA Facts- Darlene Jenkins borrowed money from Gainer bank to buy a car the defaulted on her loan. The bank’s law firm then sued Jenkins in state court to recover the balance. In an effort to settle an attorney for the firm, (Heintz) wrote to Jenkins ‘s lawyer, listing the amount that she owed under the loan, and included what she owed for insurance ($4,173) which was bought by the bank because she had not kept her promise to the bank to keep the car insured… Jenkins then brought this Fair Debt Collection Practices Act suit against Heintz and his firm. Jenkins conceded that the loan agreement required her to keep the car insured "'against loss or damage'" and permitted the bank to buy such insurance to protect the car should she fail to do so. BUT, she said, the $ 4,173 substitute policy was not the kind of policy the loan agreement had in mind, for it insured the bank not only against "loss or damage" but also against her failure to repay the bank's car loan. Hence, Heintz's "representation" about the "amount" of her "debt" was "false"; amounted to an effort to collect an "amount" not "authorized" by the loan agreement; and thus violated the Act. QUESTIONS: What is the primary issue addressed in the Heintz case? Whether the term“ debt collector” in the FDCPA applies to a lawyer why regularly, through litigation tries to collect consumer debts. How did the Supreme Court resolve the issue? Yes, lawyer can be considered “debt collectors” under the FDCPA. The act does apply to litigating lawyers (deciding to opt for the 7th circuit’s side of the circuit split) based principally on legislative intent. What was their reasoning? Lawyers regularly try to obtain payment of consumer debts through legal proceedings, so a lawyer regularly "attempts" to "collect" those consumer debts, and thus is a “debt collection agency.” The FDCPA defines the "debt collector[s]" to whom it applies as including those who "regularly collect or attempt to collect, directly or indirectly, [consumer] debts owed or due or asserted to be owed or due another." The plain language of the Act itself says nothing about retaining the exemption in respect to litigation. When Congress considered the Act, there was fear that repeal would limit lawyers’ ability to contact third parties to facilitate settlements as well as interfere with clients ability to pursue judicial remedies. All commentary on the subject proffered by plaintiff counsel was “not binding on the Federal Trade Commission or the public” Bartlett v. Heibl QUESTIONS: How did the attorney’s collection letter violate the FDCPA? The letter was overly confusing to the consumer The letter both demanded payment within 30 days as well as the consumer’s right to contest the amount. Must the debtor actually read the letter before a violation can be claimed? NO, it does not matter because the burden is on the creditor to send out the letters in the correct way. Did the Seventh circuit find the letter to be a violation of the FDCPA? How did the Seventh circuit solve the problem of a confusing collection letter going forward? They wrote a “Model Debt Collection Letter” VERY useful to attorneys. Is the 7th Circuit letter useful to you? Yes! You just change the names and the amounts every time you need to send a debt collection form document. THE DEBT COLLECTION LETTER Dear Mr. Bartlett: I have been retained by Micard Services to collect from you the entire balance, which as of September 25, 1995, was $ 1,656.90, that you owe Micard Services on your MasterCard Account No. 5414701617068749. If you want to resolve this matter without a lawsuit, you must, within one week of the date of this letter, either pay Micard $316 against the balance that you owe (unless you've paid it since your last statement) or call Micard at 1-800-221-5920 ext. 6130 and work out arrangements for payment with it. If you do neither of these things, I will be entitled to file a lawsuit against you, for the collection of this debt, when the week is over. Federal law gives you thirty days after you receive this letter to dispute the validity of the debt or any part of it. If you don't dispute it within that period, I'll assume that it's valid. If you do dispute it--by notifying me in writing to that effect--I will, as required by the law, obtain and mail to you proof of the debt. And if, within the same period, you request in writing the name and address of your original creditor, if the original creditor is different from the current creditor (Micard Services), I will furnish you with that information too. The law does not require me to wait until the end of the thirty-day period before suing you to collect this debt. If, however, you request proof of the debt or the name and address of the original creditor within the thirty-day period that begins with your receipt of this letter, the law requires me to suspend my efforts (through litigation or otherwise) to collect the debt until I mail the requested information to you. Sincerely, John A. Heibl Nielsen v. Dickerson Facts: Household Bank (SB), N.A. ("Household Bank" or the "Bank"), issued GM credit cards to Nielsen and the other class members. The Bank's affiliate, Household Credit Services, Inc. ("Household"), which operated under the trade name "GM Card," serviced the Bank's credit card portfolio by, among other activities, maintaining the individual credit accounts and rendering collection services. Dickerson is licensed to practice law in Virginia and has done so for more than 30 years. He heads a small firm, David D. Dickerson & Associates, comprised of himself, two other attorneys, and some twenty to twenty-five staff assistants QUESTIONS: Who were the defendants in this case? Household Bank and the Dickerson Law Firm How did each defendant allegedly violate the FDCPA? Household Bank and the Law Firm were both debt collectors, so they could both be liable for statutory What is required of an attorney before he/she can lawfully send a collection letter? The attorney must have some professional involvement with the debtor’s file (pg. 70) How was the bona fide error defense raised in this case? The Bank (Household) raised the defense by asserting that the mistake of hiring Dickerson What types of errors will the bona fide error defense always apply? Clerical errors such as typos and grammatical errors. When does the bona fide error defense generally not apply? They do not apply to mistake of law defenses because lawyers are supposed to know the law. How did the 7th Circuit conclude here? The 7th Circuit Concluded that Household cannot avail itself of the bona fide error defense. H. Lender Liability 3 Main Areas of Lender Liability Lender Misrepresentation Breach of Contract Good Faith Important because it puts a tenor (tone) on the conduct of people (honesty, decency, sincerity. “Good faith has a huge impact in legal proceedings Lender Liability Case Illustrations Lender Misrepresentation K.M.C. Co. v. Irving Trust Co. Facts: KMC is a retail grocery store who had a line of credit with Irving Trust Co. for 3 million dollars. The line of credit increased one year later to $3.5 million at a lower rate of interest, then March 1, 1982, Irving refused to advance $800,000 requested by K.M.C. This amount would have increased the loan balance to just under the $3.5 million limit. K.M.C. contends that Irving's refusal without prior notice to advance the requested funds breached a duty of good faith performance implied in the agreement and ultimately resulted in the collapse of the company as a viable business entity. Questions: Of the three types of lender liability, which ones were alleged in this case? Breached a duty of good faith What kind of basis is required in the Sixth Circuit in order for a loan officer to terminate a debtor’s line of credit? There has to be an objective (reasonable basis) for the bank to sue Did the Sixth Circuit find a sufficient basis for the loan officer to terminate the debtor’s line of credit? If not, why not? No, it was not reasonable for the bank not to advance money when it would have been within the maximum line of credit, and it was also fully secured. Also, the loan officer was known to have a bit of a vendetta against KMC Who was awarded damages, why, and in what amount? The jury awarded 7.5 million dollars to KMC against the bank Kham & Nates Shoes v. First Bank of Whiting Facts Questions: What was the issue before the Seventh Circuit? This issue was what “bad faith” in lending means to the second circuit. Did the Seventh Circuit agree with the Sixth circuit on the basis necessary for a loan officer to terminate a debtor’s line of credit? If not, how do they differ? No, the 7th circuit disagreed with the 6th circuit and opted for the “Contract Standard”à the bank can terminate the line of credit at its own discretion. What analogy did the Seventh Circuit offer when explaining the basis necessary to terminate a line of credit? In the 7th Circuit, the basis necessary to terminate a line of credit is the “Employment at Will Standard” à we can both leave whenever we want. I. Wisconsin Collection Law Class Notes (8/31/2021) There are three reasons why people go into financial distress: Lose job Get divorced Get sick (hospital fees) Two goals of an eviction (1) Get the tenant out of the premises and, (2) get a money judgment against the defendants Getting the tenant out is more important because then even if they don’t get the money judgment, they can at least source new tenants. I. Wisconsin Collections Law 1. Judgment (Chapter 806) Judgment = A court’s final or interlocutory (provisional) determination of the rights and obligations of the parties in a case. Defined as— “an action instituted for the enforcement of a right or the redress of an injury.” SO — judgment= culmination of the action Judgment declares the existence of a right, recognizes the commission of the injury, OR negatives the allegation of one or the other. Important Sections § 806.06” Rendition, Perfection, and Entry of Judgment § 806.07” Relief from Judgment or Order § 806.23” Action on Judgment, when Brought Questions Why is it important for the plaintiff’s attorney to request a sum certain in the plaintiff’s complaint? Because only the damages demanded may be awarded in a final judgment. In Stein v. Illinois State Assis. Commn., the plaintiff’s failure to serve an affidavit setting forth the amount of its claimed damages was grounds for reversing a default judgment. What is a default judgment? A judgment entered against a defendant who fails to plead or otherwise defend against the plaintiff’s claim. Also, a default judgment can be rendered if one of the parties fails to appear at his court hearing. Can also occur if a party does not comply with an order from the court like to comply with a discovery request. What must a plaintiff prove before the plaintiff can receive a default judgment from the court? The plaintiff must prove service (through an affidavit of service) meaning that the process server actually found the guy NOTEà Always better to go with a process server if personal claim is made against the defendant, the plaintiff must prove that the court has (1) personal jurisdiction over the defendant, and (2) additional proof as the “interests of justice require” if NO personal claim is made against the defendant, the plaintiff must (1) prove the court has jurisdiction over the status, property, or thing which is the subject of the action and (2) additional proof as the “interests of justice require” Can a plaintiff accomplish personal service by leaving a copy of the complaint at the defendant’s residence? No, according to 802.06(4) leaving the summons at the abode of the defendant does NOT count as personal service. Only in evictions can that happen Why are the definitions in § 806.06 “Rendition, perfection, and entry of judgment “important? Those words are triggering devices for time periods in the statutes. Because without the judgment being (1) rendered, (2) entered, (3) perfected, and (4) granted, nobody gets their money after trial… which is the whole point of going to trial. Notice of entry of judgment or order must be given within 21 days after the entry of judgment or order, in order to constitute notice. Rendered = when the judgment is signed by the judge or the clerk at the judge’s written discretion. Entered= filed in the office of the clerk of court Perfected = by taxation costs and the insertion of the amount thereof in the judgment. Granted = given orally on open court on the record. Why is § 806.07” Relief from Judgment or Order important?” Because as an attorney, it is how you vacate a judgment (overturn it) Can be awarded for (1) mistake, (2) inadvertence, (3) surprise, and (4) excusable neglect. In determining whether to award a default judgment, the statute should be liberally construed because giving people their day in court is favored over default judgment. When would a plaintiff ever use § 806.23 “Action on Judgment when Brought?” Because sometimes a party is unable to enforce a prior judgment for specific performance of a K by the court-imposed deadline, so the law allows for a new motion for a new order with a new deadline. 2. Execution (Chapter 815) Definition — Execution is the act of carrying out or putting into effect a court order. It is an order signed by the court to the sheriff telling the sheriff to seize a debtor’s property, sell it, and deliver money received to the creditor. Party that wins the court ordered judgment = Creditor Party that owes the court ordered judgment = Debtor Timeframe — 5-year statute of limitations to issue execution after the final judgment is rendered, otherwise the judgment goes “dormant.” Process — (1) Win judgment, (2) creditor must enter the judgment with the clerk of court & pay the filing fee w/option to enter the judgment into the lien docket for an additional fee. If that occurs, the judgment amount becomes a formal lien against any real estate the debtor owes in that county for a period of 10 years and allows the creditor to act to enforce the judgment lien against the real estate. Upon valid execution — Once execution has issued, the creditor then must await a response from the sheriff. The sheriff must return the writ of execution to the Clerk of Court where the execution was issued. In most counties the sheriff will deliver any money seized or proceeds from sheriff sales to the creditor. In some counties the sheriff may deliver the proceeds to the Clerk of Court. Terms: Lien à A right to possess another person’s property until a debt is paid. Levy à A legal seizure of your property to satisfy a debt. Levies are different from liens. Questions: What is required before one can execute? Enter judgment with clerk of court and pay the fee What are the three kinds of executions? Give me an example of each. The three kinds of executions are Against the property of the judgment debtor Ex., Executing against specific property of the debtor (gong after someone’s car or boat) Against the judgment debtor’s person Ex., in a divorce, the husband is not making his payments and the court sends an officer to go get him. They physically take you to the courthouse to answer for something in court. For the delivery of property Ex., garnishment What is the statute of limitations on a judgment? 20 years... after that you’re screwed But in WI, you can add another 20 years after the initial 20 (40 total) When does a judgment go dormant, and what is the legal effect of dormancy? 5 years… Legal effect is that no valid execution can issue on a dormant judgment. How does one revive a dormant judgment? For a dormant judgment can be revived, the creditor must (1) request a hearing before the court to revive the judgment, (2) notify the debtor of the hearing, (3) win and enter the judgment with the clerk of court, and (4) pay the filing fee. How does one execute on a judgment? The creditor (1) enters the judgment with the clerk of court, (2) learns about the debtor’s property, and (3) decides which county to obtain a writ of execution in. What document is necessary in order to execute on a judgment? A writ of execution Who must the writ of execution be delivered to? The creditor must deliver the writ of execution to the sheriff for service. Note: the writ of execution can only be served (delivered) to the debtor by the sheriff. How do I know which county to execute in? Execute in the county where the property is If execution is against the debtor’s property, the execution is issued to the sheriff of any county where the judgment is entered in the judgment and lien docket. If execution requires the delivery of real or personal property, the execution is issued to the sheriff of the county where the property or some part of the property is situated. Executions may be issued at the same time to different counties. WI Note: Wisconsin is a seizure state, meaning that the sheriff is permitted to seize the debtor’s property. However, some of the debtor’s property may be exempt from execution, which means it cannot be seized. If the sheriff has to seize property to be sold to satisfy the judgment, the sheriff may have longer than 60 days so that the sheriff has time to sell the property. Can I execute if the debtor has died? Yes. One year after the debtor dies, property held as a lien at the time of the debtor’s death can be executed in the same manner and with the same effect as if the debtor were still living. When does a lien arise on personal property? The lien arises on personal property from the moment it is seized “Tagged’ by the sheriff When the debtor hasn’t paid the debt and has sufficient assets to serve as collateral WIà Pure race… first in time and first in right Wisconsin is a “seizure state” When does a lien arise on real property? A lien arises on real property upon endorsing on the execution a description of the property on which the levy was made and recording the execution in the register of deeds. When the debtor hasn’t paid the debt and doesn’t have sufficient tangible personal property to serve as collateral and therefore the person’s real estate is used. This writ of execution leads to an “execution lien” which is created by the sheriff Hence, a “sheriff’s sale,” where the sheriff sells the property 3. Attachment (Chapter 811) Definition — The seizing of a person’s property to secure a judgment or to be sold in satisfaction of a judgment. In WI, a writ of attachment is prejudgment and is issued before final judgment in a case. Courts attach a defendant’s property as a provisional remedy to prevent the defendant from making herself judgment- proof. Ex., the court might attach a portioned a defendant’s bank account to prevent her from transferring all her money to another account. Questions How does attachment differ from execution? Attachment occurs at the outset of the litigation, and execution occurs after the litigation following a valid final judgment. Attachment = pre-judgment Execution = post- judgment How does one get an attachment in a contract and/or tort action? Before a writ of attachment can be executed, the plaintiff or someone on the plaintiff’s behalf must make an affidavit setting forth specific facts to show that the defendant is indebted, or that property of the defendant is available to the plaintiff in a sum of money exceeding $50 (specifying the amount above all setoffs and that the money is due upon K or upon a judgment and that the affiant knows or has good reason to believe either: The defendant is absent from the state, or is concealed there in so that the summons cannot be served; or That the defendant has disposed of/ concealed or is about to dispose of/conceal the defendant’s property or some part thereof with intent to deceive the creditor. How does one attach personal property? Through the same process used for an execution, (1) enter the judgment award with the clerk of court, (2) locate the defendant’s property, (3) obtain a writ of execution for the sheriff in the proper county. How does one attach real property? To attach real estate, the sheriff has to record the writ of execution with the officer of the register of deeds and certify that by virtue of that writ, he has attached all of the defendant’s interest in the real estate and provide a description of the real estate. 4. Replevin (Chapter 810) Replevin is an action for the repossession of personal property wrongfully taken or detained by the defendant whereby the plaintiff gives security for and holds the property until the court decides who owns it. Writ of replevin: a writ obtained from a court authorizing the retaking of personal property wrongfully taken or detained. WI Rule on Replevin In WI, a writ of replevin may be issued any time before final judgment in a case QUESTIONS: What is the street-word for replevin? The street word for Replevin is “Repossession” How does § 425.205 (1) (g) modify Chapter 810? 425.205 (1) (g) modifies Chapter 810 by requiring the merchant to send a “15- day letter” notifying the debtor that the replevin is taking place. For consumer repossession, the merchant trying to repo something must send a demand letter by certified mail that gives the consumer notice that the merchant in going to repossess the consumer’s property as a result of the consumer’s debt to the creditor… providing 15 days of notice unless the debtor responds and request to go to court. How does replevin differ from execution and attachment? The main difference between attachment and replevin is that replevin is asset specific What must a plaintiff allege in order to be entitled to replevin? Proof that the creditor’s rights to the asset are superior than the debtor’s What procedure must be followed if the property sought to be replevied is inside a building? You need to get a court order for the sheriff to go into the garage If the car is in a driveway, then you can just go grab the car. 9/2/21 Key Takeaways from Tuesday 806.07 the debtor’s tool to vacate the judgment Execution requires a writ of execution and attach to it a document where you give the sheriff instructions of who and where the debtor are The sheriff can by tagging or registering in the deeds office Property then sold through a sheriff sale Moment of priority 5 year à dormancy SOL 20 year à full execution SOL Attachment = Prejudgment Replevin = post judgment Two kinds Commercial à you can go take the property Business and Consumer à requires a 15 day letter before repossession takes place 5. Garnishment Basically, if a third party possesses a debtor’s property, a non-earnings garnishment allows a creditor to intervene in the relationship to divert money to the creditor Examples include: (1) bank; (2) rent; (3) “self-employment” or “contract” income; and (4) property in possession of a third party QUESTIONS for Non-Wage Garnishment How does non- wage garnishment differ from replevin, execution and attachment? Non-wage garnishment involves property in the possession third parties Who is garnishable and what is garnishable under the non-wage garnishment statute? Third parties in possession of debtor’s property (The Garnishee) Any debt or any asset is garnishable Garnishable assets include bank, rent, self-employment or contract income, and property in possession of a third party. What can a plaintiff do if the plaintiff cannot secure personal service on the defendant? You can go to the judge of the court where the principal action is pending and request order permitting the plaintiff to make substituted service on the defendants employer if the plaintiff shows three things: The Defendant’s present place of employment That a present action exists; and That a reasonable effort was made to obtain personal service upon the defendant. Can a plaintiff seek garnishment against the property of the debtor’s spouse, and if so, under what circumstances? Generally, no, the plaintiff may not commence any garnishment action affecting the property of a spouse The plaintiff can only commence a garnishment action affecting the property of the spouse if the spouse is a defendant in the principal garnishment action as well. Once the garnishee is served, what must the garnishee say in its answer? Within 20 days of service of a garnishee summons and complaint, the garnishee must serve to the attorney for the plaintiff and file with the clerk of court an answer where he will state: Whether the garnishee was in debt to the defendant at the time of the service of the garnishee summons, Weather the garnishee at the time of service was in possession or title of any interest in land or personal property belonging to the defendant What is the nature of the garnishee’s liability once served? The garnishee is personally liable to the creditor for the property then in the garnishee's possession or under his or her control belonging to the debtor or in which the debtor is interested except such as are exempt from execution, or are required by a court to be paid by the debtor as restitution under s. 973.20, but not in excess of the amount of the creditor's claim. Can a bank be garnished for property in the customer’s safety deposit box? No, property in a safe deposit box at any bank is NOT property in the possession or control of such bank or safe deposit company. Webb v. Erickson Facts: Creditor garnishes home seller for realtor’s debt. Seller moves to vacate after his wages are garnished, & wins .Court: OK to vacate after 3 years b/c seller got very late notice (good excuse) WI Law Analysis: Could vacate under 806.07(h) (other options had expired after 1 year)20. Questions: How did Webb secure his first judgment? By default judgment against the Erickson’s. How was Webb able to secure a judgement against Bates? Webb served a summons and writ of garnishment on Bates at his home. Webb went after the Erickson judgment through Bates (who owed Realtor’s commission to Erickson. What asset was Webb seeking from Bates that was Erickson’s Property? Real estate commissions that Erickson was owed from Bates What procedural; mechanism did Bates employ to remove himself from liability to Webb? Bates filed a motion to vacate judgment and a motion to stay the execution of the judgment 806.07 Motion to Vacate VERY IMPORTANT What were Bates arguments before the court? He had just been released from the hospital; Divorce Pain and depression The motion to vacate was awarded. Upon what basis did the court grant Webb relief? Extra ordinary circumstances justifying relief. Reasons for Bates’ failure to understand and answer relate to excusable neglect. Network Solutions v. Umbro Factsà Creditor tries to garnish domain name held by debtor’s network service provider Issueà Whether a contractual right to use an Internet domain name can be garnished. Is a domain name. a debt to the Canadian Company? Holding à no, such a contractual right is the product of a contract for services and hence is not subject to garnishment QUESTIONS: How did Umbro secure its first judgment? The district court permanently enjoined the judgment debtor ( A Canadian Company) from further use of the domain name "umbro.com" and awarded a default judgment to Umbro in the amount of $ 23,489.98 for attorneys' fees and expenses. What asset was Umbro seeking to garnish? 38 Internet domain names that the judgment debtor (the Canadian company) had registered with (NSI) They are the licensing agent that provided the domain name. How did NSI seek to defeat the garnishment action? It answered the garnishment summons stating that it had no money or other garnishable property belonging to the judgment debtor and characterized the domain names as “standardized, executory service contracts or domain name registration agreements.” Did the Virginia court believe that the domain name was personal property? Yes, it said that the Internet domain names are valuable intangible property subject to garnishment. How did the Virginia court conclude? Not garnishable because the garnishee have a liability (aka debt) to the judgment debtor Concluded that because to was personal property formed by a contract, rather than a liability. Would the outcome be the same in Wisconsin under Wisconsin’s garnishment statute? NO, the Domain names would have been Garnishable under the broader WI law. WI allows garnishing of a “liability” and of “personal property” 812.11(1) We have the same “liability” term. 812.11(2): In WI we can also garnish “any interest in any land OR PERSONAL PROPERTY”. Unifund CCR Partners v. Olofson QUESTIONS: How can DD&P Services LLC be held liable for one of the owner’s individual debts? Because WIS. STAT. § § 812.18(1) provides that: From the moment of service upon the garnishee, the garnishee shall be liable to the creditor for the property then in the garnishee's possession or under his or her control belonging to the debtor As a part owner DD&P Services LLC, the garnishee, was this a proper non- earnings garnishment against Olofson? Yes because following a garnishment hearing, the circuit court determined that the action was properly filed as a non-earnings garnishment action and that DD&P had $1,500 of Olofson's property in its possession when DD&P was served with the garnishment action. Must the debtor’s property in possession or control of the garnishee be easily identifiable? No, the court only required a reasonable inference of the amount that was in possession or control of DD&P that belonged to Olofson or in which Olofson had an interest at the time of service, and that was $1,500. What should DD&P Services LLC have done upon receiving the non- earnings garnishment action? They should have said “we have 1500 of the debtor’s property” They should have had the other co- owner of the company send back the letter. How was the court able to determine that DD&P Services LLC owed money to Olofson? They were able to determine that the LLC owed money to Olofson because the next day, the LLC transferred 1500 to olofson 5.1. Wage Garnishment AKA earnings garnishment — wage garnishment gives the creditor the ability to have a debtor’s employer (the garnishee) take money out of the debtor’s earnings and send monies directly to the creditor. Earnings do not just include wages, salary, and commission. They also include periodic payments under a pension or retirement program. Thus, the debtor need not be currently employed by the garnishee. QUESTIONS: 1. How is wage garnishment different from non—wage garnishment? Because wage garnishment involves just the debtor’s employer, rather than a brokerage company or bank or whatever. 2. Are the earnings, which are garnishable, broadly defined? Yes, not only are wages garnishable, but so are annuities like pension payments and retirement money. 3. Does the Wisconsin garnishment statute provide a cost-effective means of securing personal service? Yes they allow for service through certified mail… instead of personal service 4. For what period is the garnishment effective? 13 weeks, so if you do one, then you’re good for thirteen weeks. 5. What happens if more than one garnishment is served on the employer? They stack up on top of each other 6. What has top priority over a garnishment order? Court ordered domestic relations payments will supersede a garnishment order 6. Judgment Lien (Chapter 806) Questions 1. How does one obtain a judgment lien? Pay the money to have the debtor’s name put into the judgments and lien docket 2. Where must the judgment be recorded? In the county where the real estate is located. 3. What is the statute of limitations on the judgment lien? 10 years 4. What does the judgment lien attach to? Any real estate that the debtor acquires in that county for the next ten years 5. In what county must of the judgment lien be entered? Where the real estate is. 6. How does a judgment lien differ from an execution lien? Judgment Lien How to obtain: Enter it into the judgment lien docket Type of property covered: Real property only SOL: Good for 10 years Covers after acquired property? YES Two ways to get back your money (1) start a foreclosure or (2) the ten-year SOL runs out NOT Self-executing Execution Lien How to obtain: Get a writ of execution, deliver it to sheriff, then sheriff seizes the property and conducts a sheriff’s sale. Type of Property Covered: Real or personal property SOL: Good for 20 years Covers After acquired Property? NO Only covers the property at the day the sheriff seizes it. They do not cover after acquired property. YES self-executing Key Takeaways from last class. Non-wage garnishment Creative way to go after property that the debtor owes to the creditor by going after a third person in possession of the debtor’s property Wisconsin’s garnishment statute is great Once the garnishee is served, that person becomes personally liable for the debt. Webb caseà real estate broker was the debtor Unifund (Wisconsin case)à if someone has an interest in an LLC, you can garnish the LLC in whatever value the LLC owes to the creditor. Earnings garnishment 13 weeks for earnings garnishment, and can be done through certified mail. Judgment liens different from execution liens because they effect only real estate and are not self-executingà you have to initiate the foreclosure action 7. Family Debts What debts are marital debts? Also known as a marital obligation, or “family purpose obligation” is an obligation incurred by a spouse in the interest in the marriage or the family. Any debt incurred during the marriage is a marital debt How can a merchant conclusively make a debt be a marital debt? By requiring that a spouse can make a written statement, signed by the incurring (obligating spouse) that the debt is a marital debt incurred in the interest of the marriage. What debts are individual debt (Four Kinds) Premarital property: Debts incurred before the marriage or before both spouses live in Wisconsin at the same time. Also, debts incurred during the marriage but not in the interest of the marriage Tort liability Pre-Wisconsin debt What assets are available for execution on a marital debt? The creditor can go after 100% of the incurring debtor’s individual property and 100% of the marital property in an attempt to satisfy the debt… so long as the debt is not exempt from execution. What assets are available for execution on an individual debt? All of the individual debt is available for execution On a marital debt, only 50% of assets are available for execution How can a divorce decree affect the classification of debt? In a divorce decree, the judge is supposed to separate out the assets… the judge has the authority to change individual debt into marital debt. But the judge cannot change marital debt into individual debt. the judge has no authority to change the creditor’s contract rights How can a marital property agreement affect a creditor’s rights? The judge can change the classification of the property (making it marital from individual) but cannot change the contractual rights of the creditor with the divorce decree. If a debt is a marital debt, the potential creditor is required “to consider all marital property available to satisfy the obligation” But the creditor cannot go after the non-incurring spouse’s individual property What property is marital property? Marital property is property acquired during the marriage and subject to distribution or division at the time of marital dissolution. What property is individual property? Property acquired by a spouse before the determination date marriage and after the determination date. Gift Proceeds of other individual property of the spouse Appreciation of the spouse’s individual property during the marriage. Personal injury damages stays individual property. What property is mixed property? When you are using a particular type of property to pay down a marital debt. When individual property becomes mixed with marital property. For example, when one spouse takes out a loan and purchased a home years before the marriage, then uses marital money to pay down the debt. How does tracing impact the classification of property? A mixed asset will be considered marital property if the individual component of the asset is unable to be traced. To satisfy the tracing requirement, in interest in an asset must be traced back to the individual component. Redenius v. Redenius Questions How is the issue of marital debt v. individual debt raised in this case? Whether the transfer of the thirty items of personal property was made within one year of the start of the divorce action because Wis. Stat. 767.275 says that property transferred/wasted/given away withing one year prior to filing of the divorce is marital property subject to equal division. Legal issue à Whether the $6,500 is an individual debt that she has to bear personally, or if she can categorize it as marital debt. What was the strongest argument supporting the husband’s classification? The husband’s best argument was that the debt assigned to Dianne was not marital debt because it was incurred by her after the commencement of the divorce action. How did the court categorize the debt, and why did it conclude as such? The court categorized the debt as marital debt, subject to equal division because Diane was able to prove that the debts increased in furtherance of a “marital purpose” Examples – stereo equipment for the children and computers for them to do schoolwork on. In Re Grady Facts: Couple married for 32 years The enter into a marital property agreement encompassing the personal property Meek and Grady would receive and the debts for which Grady would be responsible. This resulted in wife "receiving" assets totaling approximately $ 600,000 and Grady agreeing to be responsible for business debts totaling more than $ 350,000. Questions What legal theory did the trustee assert to overturn the marital property agreement? He argues that the assets were (1) commingled so that the assets became marital property and (2) there was fraud because she got all the assets out of the bankruptcy estate What facts supported the trustee’s argument? No commingling NOTEà keep individual property separate from the spouse’s like this if you want a pre nup without making the prenup. Did the court agree with the trustee’s position? If not, why not? yes What was the source of the wife’s property, and how did that affect its classification? No fraud because the money was in gifts from her parents, which are individual property. Schultz v. Sykes What type of debt did the wife incur by her attempt to suborn perjury from a witness?

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