Debtor

AN OVERVIEW OF THE LAW ON DEBT

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DEFINITIONS

Debtor: one who owes a debt.

Creditor: A person or entity to whom money or a debt is owed

Judgment debtor: A person who owes money pursuant to a court judgment.

Judgment creditor: A person who is owed money pursuant to a court judgment.

Money Judgment: Court decision directing the payment of a sum of money.

Garnishee: A person who owes money/debt to a judgment debtor. It is also a person that has property in his possession in which the judgment debtor has an interest.

Mortgage: Giving real property as collateral for a loan.

Foreclosure: sale of property (real) that was given as collateral (mortgage) for a loan. Foreclosure in Liberia can either be judicial or non-judicial.

Collateral: Property that someone promises or gives to a creditor to guarantee payment of a debt. If the borrower default (fails to pay) on the loan, the creditor may seize the property and sell it to cover the debt. Collateral can also be called security interest.

Trust: An arrangement under which one person, a trustee, manages property for a beneficiary. The person who creates the trust is called the settlor, trustor, or grantor. There are many kinds of trusts, some created during the settlor’s lifetime and some at death. Trusts are used for, among other things, avoiding probate court proceedings, saving on estate tax, providing quality management of assets, and keeping money out of the hands of improvident beneficiaries.

Homestead: The house in which a family lives, plus any adjoining buildings on that land. Homestead is also a real estate that is not subject to the claims of creditors as long as it is occupied as a home by the head of the household.

Debt is defined as a duty or obligation to pay money, a duty to deliver goods or render services under an agreement. In a less technical sense, debt is any claim for money.

STATUTE OF LIMITATIONS

An action of debt must be started within 7 years if based on a written instrument

An action of debt must be started within 3 years if not based on a written instrument

COURT HAVING JURISDICTION OVER DEBT MATTERS

Magistrate court when the amount is less than $2000, 01 United States Dollars (USD) or the Liberian Dollars (LD) equivalent;

Debt court when the amount is $2000, 01 USD (or the LD Equivalent) or more;

The Commercial Court concurrently with the debt court when the amount of the indebtedness is USD $15,000 or more;

The Probate Court when the amount is $2000, 01 USD (But only where there is no debt court);

The Circuit Court when the amount is $2000, 01 USD (But only where there is no debt court or probate court)

NB: Parties cannot decide which court to use as the law attributes jurisdiction and not parties. Jurisdiction is not conferred by parties but by Law. The decision of a court that does not have jurisdiction is null and void

OTHER FORA FOR DEBT CASE RESOLUTION

If the parties do not want to use the court for the resolution of their debt case, they can also legally use the following means (the list is not exhaustive):

  • ADR (especially mediation)-
  • Family intervention
  • Traditional Leaders’ intervention etc.

ENFORCEMENT OF DEBT JUDGMENTS

When a debt case goes to court and the court rules that the debtor indeed owes the creditor, the judge will enter a money judgment. The money judgment can be enforced in the following manners:

Execution

If the debtor does not have cash money to pay the judgment, the Debt Court will sell some of the properties of the debtor to pay the money owed the creditor. The court sheriff will sell to the highest bidder at a public auction, and neither the sheriff nor his deputy can participate in the sale.

Although the court can sell the debtor’s property to pay the creditor’s money, the law says that there are certain property that cannot be sold.

  1. Personal Property
  1. a) Tangible property
  • Necessary household furniture and utensils to the value of $100;
  • The family Bible and family pictures and any books not exceeding in value $50;
  • Food necessary for the support of the family for 30 days;
  • Clothes to the value of $200;
  • Wedding ring;
  • Work equipment including those of a mechanic, farm machinery, farm animals and professional instruments, not exceeding in value $500;
  1. b) Income exemptions
  • 90% of payments to trust established by a person other than the judgment debtor;
  • 90% of the earnings of the judgment debtor for his personal services rendered within 60 days or any time after the court’s decision
  • Money for the support of a wife or child where either of them is the judgment debtor
  1. Real Property
  • The homestead of any family comprising one town lot or one acre of farmland upon which the house is located cannot be sold to pay the judgment creditor.
  • However, the property must be designated as a homestead through a notice that must be probated and registered.
  • Nevertheless if the money borrowed was used to build the house, the debtor cannot hide behind the homestead exemption.

Deferred Payment

A judgment debtor may apply to the court at any time after the case ends for permission to pay the money due in installments. The court shall grant the application if:

  • It is satisfied that the judgment debtor has no assets available for immediate payment;
  • The debtor makes an initial payment of 25%; and
  • The debtor posts a bond to indicate that he will comply with the terms of the installment payments and that he will pay interest on the unpaid balance at the rate of six percent per year.
  • If the court agrees, then the judge will ask the judgment debtor to pay the installments as follows:
  • On all sums up to $100 2 months
  • On all sums from $100-$499.99 4 months
  • On all sums from $500-$999.99 6 months
  • On all sums of $1000 or more 1 year

IMPRISONMENT

The general principle is that people must not be arrested or imprisoned because they are unable to pay their debt (Sec. 44.1 Civ.PL). However, there are few exceptions to this general rule.

In the following actions:

  • Adultery
  • Seduction of wife or child
  • Illegally taking away or harboring a wife or child or ward under twenty-one years of age;
  • Enticing an incompetent away from his legally appointed trustee or guardian; or
  • Injury to the reputation when the words spoken or written are actionable per se.

The judgment debtor may be imprisoned if he is unable to pay or refuses to pay the full amount of the judgment together with court costs and interest.

The sheriff will arrest the judgment debtor and the court will order his imprisonment for a period sufficiently long to settle the full amount of the judgment plus interest and court costs at the rate of $25 per month.

ENFORCEMENT THROUGH CONTEMPT PROCEEDINGS

If a judgment debtor fails to pay money that he was ordered to pay by the court he will be held in contempt. If the judgment debtor still has the money to pay, he will be jailed until he pays the money. If he no longer has the money, the court will jail him for a period not more than 6 months. If fine is imposed it must not exceed an amount reasonable to indemnify the complainant for any loss suffered. If there is no loss suffered, the fine must not exceed the amount of $250 which will be paid to the complainant.

Any of the following money judgment may be enforced by contempt proceedings:

  • Against a trustee or a person acting in a fiduciary relationship for the payment of a sum of money for a default or dereliction of his duty; or
  • For the support of a wife, child, or other dependent

GARNISHMENT

A garnishee is a person who owes money to or has property in his possession in which a judgment debtor has an interest. The court can order someone who owes money to, or has money or property belonging to a judgment debtor, to deliver said money or property to the judgment creditor.

For example an employer may be ordered by the court to set aside portion of the salary of a parent (debtor) who owes support for the benefit of a dependent (creditor). The employer is then required to withhold a certain amount of the parent’s paycheck each month and send it to the court to be paid to the other parent (creditor)

DEBT AS A CRIME

As a matter of principle, debt is a civil matter. But debt can become a crime where the debtor attempts to, or, defraud a secured creditor. In that case we will talk about the crime of defrauding secured creditors (Sec. 15.57 Penal Law)

There are two types of debts: Secured debts and unsecured debts.

Secured debts are debts that are backed by a security interest or collateral. Unsecured debts are not backed by collateral. By inference, under a secured debt, the creditor is a secured creditor; and under the unsecured debt, the creditor is an unsecured creditor

If the debtor who pledged property as collateral for a debt tampers with said property by either destroying, hiding, transferring, selling, or encumbering it, he will be guilty of the crime of defrauding secured creditors

MORTGAGE AND FORECLOSURE

When you take a loan from a bank or from an individual and you want your land to serve as collateral, the law says that you must execute a mortgage; (the money given must be used for the intended purpose).

All mortgages must be probated and registered. However, failure to probate and register a mortgage agreement does not affect the right of the parties to the mortgage.

If you fail to pay the debt the law says that the creditor must give you 60 days to settle the full amount of the debt. If you are still unable to pay, the law says that the creditor can foreclose the mortgage. Meaning that the creditor will sell the property.

There are two ways the creditor can sell the foreclosed property:

  1. Through the court (judicial foreclosure)
  2. Without the court (Non-judicial foreclosure)

For the creditor (Mortgagee) to sell the property out of court, the provision must be expressly mentioned in the mortgage agreement (it is called power of sale foreclosure).

The mortgagor (debtor) and the mortgagee (creditor) can take part in the auction of the property meaning that they have the right to buy the property.

Where the proceeds of the sale of the property are insufficient to pay the whole debt, the debtor will be liable to pay the outstanding amount. However, where the proceeds of the sale of the property are in excess of the amount of the debt, the surplus will be paid to the debtor

CHATTEL MORTGAGE

Chattel mortgage is the mortgage of personal property. Meaning that it’s giving personal property as collateral for a debt.

To be valid, a chattel mortgage must be probated and registered within 10 days of its execution. However, failure to probate and register the chattel mortgage will still keep it valid as against the mortgagor (i.e. the debtor). In the event the mortgagor/debtor fails to pay the debt, the mortgagee/creditor can foreclose the chattel mortgage through foreclosure proceedings in the court. Meaning that the court will sell the property given as collateral to repay the creditor.