On the surface, it looks like a fight between agricultural suppliers and bankers. But farmers, other working stiffs, and owners of small businesses need to closely watch how the state legislature treats them.
Colorado has a Commercial Code. Part of it deals with lenders and debtors, and how lenders protect their banks from debtors who default.
In the past eight months, two 200-page bills were introduced in the legislature to change the Commercial Code as part of a nationwide effort lobbied by banks and large corporations. In their original form, both bills ended some rights Colorado borrowers have had for over 35 years. The bills died in May 2000 and January 2001. A more reasonable bill may be coming.
Charles Dickens's novel entitled "Hard Times" is about a coal mining town in England. One character is coal miner Stephen Blackpool, married to an alcoholic. He can't get a divorce because that could only be done by an Act of Parliament, and he can't afford the cost.
His wife shows up in a drunken stupor after being gone for months. When Stephen comes home from work the next evening, she's absent as well as everything in the apartment that isn't too heavy to lift. It's perfectly legal. She is his wife and can take property, sell it, and buy liquor.
In Colorado, both husband and wife have to sign in order to put family or household goods up as security for a debt. Under the two dead bills, that would no longer have been true. Suppose husband is a compulsive gambler who never contributed a dime towards the furniture. He could have borrowed against the property without his wife's knowledge.
When he didn't pay and the bank gave notice it would repossess furniture, his wife wouldn't get notice. The first she would know about it is when repossessors knocked on the door and started hauling out the furniture.
Farmers and owners of small businesses could have lost even more under the two dead bills. "Hard Times" may be coming. Farmers and shoe repair shop owners need money. They wouldn't take time to read fine print in security agreements. They would assume everything is as it was in the past. Even if they did read the agreements, the "boilerplate" words used to describe property being pledged might not be understood.
One example: Property repossessed if the business debt is not paid on time could have included a personal checking or savings account "mom" had set up for their child's future educational needs.
Well, wait a minute. Isn't all of that something the banks can get now? Yes, but only after a court judgment determining the proper amount of deficiency owed.
Presently exempt from judgment is unmortgaged property specified in description and value in the law, such as $3,000 in household goods, $25,000 in agricultural equipment, $10,000 in goods used to carry on a gainful occupation, $25,000 in cash value of life insurance.
The point of exemptions is to allow the debtor to start over, earn a living wage and become a taxpaying citizen. The point of the two dead bills was to seize property before it could be claimed exempt.
Sen. Bill Thiebaut, D-Pueblo, opposed the two failed bills. He plans to introduce one that keeps rights provided in present law for consumers, farmers, small business, and agricultural suppliers. Colorado adopted the Commercial Code in 1965 and I drafted many of the debtor-creditor rights that have withstood the test of time. Sen. Thiebaut has asked my advice on the issues, and I have complied.
What about the agricultural supplier and the bank? Farmer needs credit to buy pesticides for growing crops. But bank doesn't give the additional credit. After notifying the bank, supplier provides the credit. Supplier's security interest would rank ahead of the bank's security interest in the crops under the Thiebaut bill.
Jerry Kopel served 22 years in the Colorado House of Representatives.
Copyright 2012 Jerry Kopel & David Kopel