Creditor

For other uses, seeCreditors (disambiguation)andLender (disambiguation).

Acreditororlenderis aparty(e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed.The first party, in general, has provided somepropertyorserviceto the second party under the assumption (usually enforced bycontract) that the second party will return an equivalentpropertyand service. The second party is frequently called adebtororborrower.The first party is called the creditor, which is the lender of property, service, or money.

Creditors can be broadly divided into two categories:securedandunsecured.

• A secured creditor has asecurity or chargeover some or all of the debtor's assets, to provide reassurance (thus tosecurehim) of ultimate repayment of the debt owed to him. This could be by way of, for example, a mortgage, where the property represents the security.
• An unsecured creditor does not have a charge over the debtor's assets.

The term creditor is frequently used in the financial world, especially in reference to short-termloans,long-termbonds,andmortgage loans.In law, a person who has a money judgment entered in their favor by a court is called ajudgment creditor.

The term creditor derives from the notion ofcredit.Also, in modern America, credit refers to aratingwhich indicates the likelihood a borrower will pay back theirloan.In earlier times, credit also referred to reputation ortrustworthiness.

Accounting classification

Inaccountingpresentation, creditors are to be broken down into 'amounts falling due within one year' or 'amounts falling due after more than one year'...

Thefinancial statementspresentation is this:

• Long-term liabilities
  • 'Long-term creditors'
• Current liabilities
  • 'Current creditors'

Rights

Creditors' rightsare the procedural provisions designed to protect the ability of creditors—persons who are owed money—to collect the money that they are owed. These provisions vary from onejurisdictionto another, and may include the ability of a creditor to put alienon a debtor's property, to effect a seizure andforced saleof the debtor's property, to effect agarnishmentof the debtor's wages, and to have certain purchases or gifts made by the debtor set aside asfraudulent conveyances.The rights of a particular creditor usually depend in part on the reason for which the debt is owed, and the terms of any writing memorializing the debt.

Priority of creditors

Creditors' rights deal not only with the rights of creditors against the debtor, but also with the rights of creditors against one another. Where multiple creditors claim a right to levy against a particular piece of property, or against the debtor's accounts in general, the rules governing creditors' rights determine which creditor has the strongest right to any particular relief.

Generally, creditors can be divided between those who "perfected"their interest by establishing an appropriatepublic recordof the debt and any property claimed as collateral for it, and those who have not. Creditors may also be classed according to whether they are "in possession" of the collateral, and by whether the debt was created as apurchase money security interest.A creditor may generally ask a court to set aside a fraudulent conveyance designed to move the debtor's property or funds out of their reach.

Specialized legal practices

Somelawyershave a specialized practice area focused on the collection of suchdebts.Such attorneys are frequently referred to as collection attorneys or collection lawyers.

Attorneyswho practice in the area of creditor's rights perform one or all of the following:

• File lawsuits and using other legal collection techniques to collectconsumerdebts (i.e., debts owed by individuals)
• File lawsuits and using other legal collection techniques to collect commercial debts (i.e. debts owed by businesses)
• Represent creditor's interests in abankruptcyproceeding
• Forecloseon homes or commercial real estate if the purchaser defaults on payment
• Recover (orreplevin) secured goods (e.g., automobiles) if the purchaser defaults on payment

Creditors' powers during insolvency

In the UK, once anIndividual Voluntary Arrangement(IVA) has been applied for, and is in place through the courts, creditors are prevented from making direct contact under the terms of the IVA. All ongoing correspondence of an IVA must first go through the appointedInsolvency Practitioner.The creditors will begin to deal with the Insolvency Practitioner and readily accept annual reports when submitted.

Under theCompanies Act 2006,a company's creditors may apply to the court for an order summoning a meeting of the creditors or some of the creditors who fall into a specific category, in order to consider a compromise or "arrangement"between the company and its creditors. If a majority representing 75% in value of the creditors or class of creditors present and voting either in person or by proxy at the meeting agree a compromise, the meeting may apply to the court for the compromise to be enforced. The same provision would apply to members (shareholders) of a company seeking to make an arrangement with the company.TheCorporate Insolvency and Governance Act 2020makes similar provision where a compromise has been proposed between creditors or members and a company which "has encountered, or is likely to encounter, financial difficulties".

See also

• Accounts payable
• Accounts receivable
• Accrualsanddeferred income
• Bank loanandoverdraft
• Bankruptcy law
• Bill of exchangepayable
• Collection agency
• Contract law
• Contribution claim (legal)
• Creditor's rights
• Debentureloans
• Debtor
• Dividends
• Fair Debt Collection Practices Act
• Individual voluntary arrangement
• IOU(I Owe You)
• Paymentsreceived on account