"I'm sorry you had to see that," said Mattison. "I'm sure it wasn't easy watching your farm equipment and vehicles being sold off."

"Nope," answered Chester.

"But once you filed for bankruptcy, the bank had no other option. We had to repossess the collateral you had put up for the loans and sell them at auction," explained Mattison.

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

"Yep," answered Chester.

"I mean, I'm sure you understand," Mattison continued, "that we followed the letter of the law on this one. We applied to the court and received a lift of the automatic stay. That meant we could legally repossess the equipment and liquidate it."

"Yep," Chester replied.

"Oh, and one more thing," said Mattison. "The sale of the repossessed items didn't generate enough money to cover the amount of your loans. That means the bank will be making a claim in your bankruptcy as an unsecured creditor, and claiming a deficiency from the sale of the equipment."

"Not likely," said Chester.

"Excuse me?" Mattison replied. "You made a big mistake," said Chester. "You didn't give me formal notice of the sale. That bars you from filing a claim for a deficiency judgment."

"You couldn't be further off the mark," exclaimed Mattison. "You, of all people, can't claim not to have received notice of the sale. I told you about the sale, so that means you had actual knowledge of it. What's more, you attended the sale in person! What could be more evidence of your knowledge of the sale than that?"

"It's not enough," Chester answered. "It's more than enough," fumed Mattison, "and you can expect to receive that claim for a deficiency judgment pronto!" Is the Bank right?

Make your decision; then, click "Next" for the court's ruling.

Answer and Analysis

No. Telling the debtor that you intend to repossess and sell his collateral, or even having the debtor in attendance at the sale, is not sufficient to meet the Bankruptcy Law's disclosure requirements. You must provide the debtor with formal, written notice of the sale.

The law provides that "reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor."

In this case, the bank failed to comply with the commands of the law, and gave no written notice of its intended sale of collateral to the debtor. Therefore, the bank is barred from filing a claim for a deficiency judgment in the debtor's bankruptcy.

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.