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My CPA-REGmodule31

Notecards I made from Wiley's 2012 CPA Exam Review

QuestionAnswer
What is the main difference between a guarantor and a surety? Surety is normally primarily liable while guarantor is secondarily liable
What are liens? creditors claims on real or personal property to secure payment of debt or performance
What is a mechanics lien or materialmans lien? statutory lien on real property (real estate) to secure payment of debts for services or materials to improve real property
What is a artisans lien? What if the debtor never pays? occurs when one repairs/improves personal property for another and retains possession of that personal property until paid -has priority over other liens/interest as long as creditor has possession 2.can give notice to owner and sell property
What is an innkeepers lien? a tax lien? 1.allows hotel to keep possession of guests bags until charges are paid 2.imposed by federal/state/local government to secure payment of taxes
What is attachment? Garnishment? 1.court ordered seizure of property due to lack of payment prior to court judgement for past due debt -creditor wins at trial, property is sold to pay debt 2.seize debtors property possessed by 3rd party (bank/employer)
What is a write of execution? remedy where court order directs sheriff to seize debtors property, which then sold at judicial sale to pay off creditor (excess of sale goes to debtor)
What is a judgement lien? party awarded damages by court and party files lien against property to secure payment
When does a composition agreement occur? What is it based on? What if debtor doesnt pay? 1.by two or more creditors agreement with debtor to accept less than full amount of debt as full satisfaction 2.contract law, needs new consideration to be enforceable 3.creditors may enforce reduced or original debt
What is an assignment for the benefit of creditors? Who has legal title of the goods? What are creditor options? When are debts discharged? 1.debtor voluntarily transfers all his assets to an assignee (or trustee) to be sold for benefit of creditors 2.assignee 3.if accept get pro rata share of debt owed, decline may file bankruptcy petition 4.when paid in FULL
What is the homestead exemption? provides exception for debtors home so unsecured creditors/trustees in bankruptcy may not satisfy debts from equity in debtors home -mortgage liens and IRS tax liens take priority over homestead exemption
What does the fair debt collection practices act do? What must a debt collector do within 5 days of first communication? 1.restricts how creditors may collect debts -collection agencies prevented from contacting debtor at inconvenient hours/places or directly if have attorney 2.provide debtor written notice of amount of debt and to whom owed
What happens under the fair debt collection practices act if a debtor contests validity of debt? where can a suit be brought? Debt collector violates act? Who enforces the act? Who does this act apply to? 1.collection attempts must cease until debtor sends verification 2.near home of debtor or in jurisdiction contract was signed 3.liable for actual damages, court costs and attorney fees 4.Federal trade commission 5.those collecting debt for another par
What does the truth in lending act require? What right does it give the consumer? 1.lenders and sellers to disclose credit(finance terms APR of interest) terms on loans to debtors 2.right to rescind credit within 3 days
What impact does the bankruptcy abuse prevention and consumer protection act of 2005 have on the truth in lending act? IMPORTANT -consumer lenders make addtl credit card disclosures (min pay, late fee, intro rate) -consumer lenders more disclosures on tax consequence home equity loan & internet based credit card solicitations -preserve defense/claims consumer against predatory lo
What does the equal credit opportunity act prohibit? discrimination in consumer credit transactions -creditor denies must provide notice of specific reasons -provides for civil and criminal penalties
What does the fair credit reporting act prohibit? consumer reporting agencies from including inaccurate/obsolete info in consumer reports -includes info on creditworthiness/mode of living/character/reputation -consumer can access reports disagree w/info agency must investigate and correct if need be
What does the fair credit billing act allow? consumers to complain of billing errors and requires creditor to explain or correct them -dispute remains debtor may sue
What does the fair credit and charge card disclosure act require? disclosure of annual percentage rate, membership fee on solicitations/applications
What do both a suretyship and guaranty guarantee? they are third parties that promise to pay debt owed by debtor if debtor does not pay. 3rd parties credit acts as security
Because a suretyship leaves the surety primarily liable for debt what does this mean for the creditor? creditor can demand payment from surety, no need to attempt to collect from debtor first nor give notice of debtors default
Because in a guaranty contract a guarantor is normally secondarily liable, what does this mean? can be required to pay only after debtor defaults and creditor demands payment from debtor -can sometimes require creditor to bring suit on debtor before coming after guarantor (guarantor of collection)
Is separate consideration still needed if a surety/guarantor's agreement happens at same time as the contract between the creditor and debtor? No only if creditor gives loan before surety/guarantor's promise
Does a surety's agreement need to be in writing? Guarantor? 1.Yes 2.Yes unless promise is primarily for guarantors own benefit (i.e keep someone in business cause depend on their business)
Are third party beneficiary contracts or indemnity contracts suretyship contracts? warranties a guaranty contract? 1.No 2.No
Who has the capacity to act as surety or guarantor? individuals with capacity to contract, partnerships if all partners, corporations
What is exoneration? Can it ever be unavailable to use? 1.Surety/guarantor may require (by lawsuit if necessary) debtor to pay obligation if debtor is able to 2.yes if creditor demands prompt performance from surety
If a surety/guarantor pays the debt, are they entitled to reimbursement from the debtor? What if they paid after the debtor filed a valid defense? What is the surety's right to subrogation? 1.Yes for only the actual payments to the creditor (may resort to collateral to satisfy reimbursement) 2.lose right of reimbursement from debtor 3.surety obtains same rights against debtor that creditor had
Does the creditor owe any information to a surety? must disclose any info about material risk that surety may not be aware of, and any facts inquired by surety
What are the defenses that a surety may exercise against the creditor? same that would be available to debtor as long as not debtors personal defenses (can use-breach/failure, impossibility/illegality of performance, creditor cant obtain promise by fraud/duress/misrep, statute of limitations)
What are a surety's own contractual defenses? fraud/duress used by creditor to surety/creditor to debtor (not debtor to surety), contract is illegal, incapacity of surety(is a minor), contract had no consideration/not in writing, creditor fails to disclose material facts about debtor ability to pay
If a creditor already owed a surety an obligation, can this offset payments owed to creditor? what if from another transaction? 1.yes 2.yes -think about it otherwise just trading the money back and forth
What acts by a creditor would discharge a surety from obligation? refusal of debtor/surety tender of performance, release of debtor from liability (unless specifically reserve right to surety), release surety, debtor satisfies creditor, certain changes in contract after surety signs on
What changes in a contract would discharge an accommodation(non compensated) surety? commercial (compensated) surety? what if commercial surety and change wasnt material? What if the changes are beneficial to the surety? 1.any change by creditor on terms required 2.change materially increases risk to surety 3.not a material increase in risk, obligation reduced by amount of loss due to modification 4.surety is NOT released
What can't the surety/guarantor use as a defense? debtor personal defenses(death/insolvent/debtors setoffs), creditor didnt use collateral 1st, no notice debtor default, delay in proceeding against debtor(unless passed limitations), multiple debts owed surety cant choose which debt payment applies to
What are cosureties? need to happen at same time? Sign same document? aware of each other? bound for equal amounts? 1.multiple sureties for same debtor for same obligation 2.no 3.no 4.no 5.no
How can a creditor proceed against sureties? against any of the sureties jointly or against each individually -proceeding against one doesnt release others
What is a right of contribution among cosureties? one surety pays more than his obligation to the debt, thus entitling him to compel other sureties to pay him for the excess amount paid
What is cosurety responsible for? IMPORTANT only his proportion of risk (his amount obligated/total amount assumed by all sureties)
Are cosureties entitled to a share of a collateral pledged by the debtor? Yes ANY collateral (held by creditor or other surety), share is in proportion to cosureties liability for debtors default
What happens to the others if one cosurety is released/discharged by a creditor? others liability is reduced by percentage of release 12,000 debt, A surety for 4,000 B surety for 12,000. A discharged. B liable for 9,000 b/c 4,000/16,000=.25, .25x12,000debt=9,000
If one of the cosureties can not pay, how are the remaining treated? not released, take cosureties that an not pay out of denominator in determining proportions obligated for
What is a surety bond? acknowledgement of obligation to make good the performance of another (construction company guarantees builders obligation to complete construction) -only held liable for damages -retain right of subrogation(same rights) against bonded party
What is a fidelity bond? official bond? 1.forms of insurance protecting an employer against losses sustained due to acts of dishonest employees 2.guarantees public officials will faithfully execute duties
Created by: Bsantoro