Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 2

 Problem Set #2

2.1. Rollins sued by 3 suppliers for $100k each

1)A – Judgment = November 1^st

2)B – Judgment = November 10^th Writ of Execution = November 15^th

3)C – Judgment = November 20^th Writ of Execution = November 22^nd = Sheriff executed = November 25^th (all appliances)

We Represent B: Appliances will bring $150k at the sheriff’s sale. Who gets the proceeds from the sale? Can we Change that?

• Depends on the rules of the state. Most states require levy to perfect a judgment. Most likely C will get $100k, our client will need to levy on the property to get his $50k. Some states allow for the relates-back doctrine, so our client could have a priority over C if, and only if, we levy on the appliances before sale.

2.2. 5 creditors w/ judgments against SBC, but only Harry executed. Nov. 25^th the Sheriff announced he was seizing all the shoes in the store, but SBC’s lawyer convinced Harry to come to a meeting the next day and not seize the shoes. Our client consented to the meeting and a workout plan. Then, on December 1^st, SBC granted a security interest in the entire inventory to Bank for $200k operating capital. It was properly perfected on December 5^th. Store closed on January 5^th. Sale of all the shoes will bring $200k. How will it be divided? How could you have better protected your client while still going along w/ the workout plan?

• Harry probably waived the perfection of his judgment. Bank will get the full value of its outstanding loan, b/c it was the first to perfect its interest. Harry will get what is left so long as he levies on the property again.
• Should have gotten a security interest on workout day, or a written K guaranteeing their loan by the principal, or

2.3. Omar (client) has judgment for breach of K against Forman Handler. Handler has a LOC for $350k in his name upon a presentation of an engineer’s certificate that a design job has been satisfactorily completed. It is assignable. How do we collect? What will we need to show in court and how can we get the evidence to make the showing?

• FRCP 69 and state laws allow discovery concerning the debtor’s assets.
• Seek a turnover order from the Court – Will need to show that 1) not readily be attached or levied on by normal legal process, and 2) is not exempt from attachment, execution, or seizure. See Gerdes.
• Evidence showing that the LOC is in Forman’s name, the document, etc. Also will need a certificate showing satisfactory completion.

5. Garnishment
   1. Used to attach debts owed to the debtor for the benefit of the debtor’s judgment creditor. A creditor may garnish a debtor’s wages by obtaining a writ directing the employer to pay the wages to the employee’s creditor rather than to the employee. Can also garnish a bank account or obtain an order to turn over the contents of a safety deposit box.
   2. 2 parts: 1) questions designed to determine whether the party served w/ the writ “garnishee” owes any money to the debtor or has any property belonging to the debtor, and 2) a command to the garnishee to withhold payment or return of the debtor’s property pending further order of the court. If garnishee answers falsely or disobeys the command to withhold payment it may be liable to the judgment creditor. It also goes for a bank that honors the debtor’s checks after service of the writ.
   3. IT is an ancillary lawsuit against the third party garnishee.
   4. Most states the garnishing creditor gets a temporal “net” the time b/t service of the garnishment writ and the garnishee’s answer—during which the creditor can hope to “catch” obligations arising in favor of the debtor. Thus the garnishment of a bank account will “catch” not only the amount on deposit on the service date but also funds deposited thereafter prior to the answer. The creditor’s net may even extend to the time of the garnishment trial.

 Problem Sets: Table of Contents

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