A creditor or lender is a

party A party is a gathering of people who have been invited by a host for the purposes of socializing, conversation, recreation, or as part of a festival or other commemoration or celebration of a special occasion. A party will often feature f ...

(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 some

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...

or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property and service. The second party is frequently called a

debtor A debtor or debitor is a legal entity (legal person) that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this ...

or borrower. The first party is called the creditor, which is the lender of property, service, or money. Creditors can be broadly divided into two categories: secured and unsecured. *A secured creditor has a security or charge over some or all of the debtor's assets, to provide reassurance (thus to ''secure'' him) 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-term

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...

s, long-term bonds, and

mortgage loan A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...

s. In law, a person who has a money judgment entered in their favor by a court is called a ''judgment creditor''. The term creditor derives from the notion of credit. Also, in modern America, credit refers to a

rating A rating is an evaluation or assessment of something, in terms of quality, quantity, or some combination of both. Rating or ratings may also refer to: Business and economics * Credit rating, estimating the credit worthiness of an individual, c ...

which indicates the likelihood a borrower will pay back their loan. In earlier times, credit also referred to reputation or

trustworthiness Trust is the willingness of one party (the trustor) to become vulnerable to another party (the trustee) on the presumption that the trustee will act in ways that benefit the trustor. In addition, the trustor does not have control over the acti ...

Accounting classification

accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "language ...

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

financial statements Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...

presentation is this: *

Long-term liabilities Long-term liabilities, or non-current liabilities, are liabilities that are due beyond a year or the normal operation period of the company. The normal operation period is the amount of time it takes for a company to turn inventory into cash. On a ...

**'Long-term creditors' *

Current liabilities In accounting, current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer. A more complete definition is th ...

**'Current creditors'

Rights

Creditors' rights are 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 one

jurisdiction Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels. Jur ...

to another, and may include the ability of a creditor to put a

lien A lien ( or ) is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the ''lienee'' and the pers ...

on a debtor's property, to effect a seizure and

forced sale A partition is a term used in the law of real property to describe an act, by a court order or otherwise, to divide up a concurrent estate into separate portions representing the proportionate interests of the owners of property. It is sometimes ...

of the debtor's property, to effect a

garnishment Garnishment is a legal process for collecting a monetary judgment on behalf of a plaintiff from a defendant. Garnishment allows the plaintiff (the "garnishor") to take the money or property of the debtor from the person or institution that holds ...

of the debtor's wages, and to have certain purchases or gifts made by the debtor set aside as

fraudulent conveyance A fraudulent conveyance, or fraudulent transfer, is an attempt to avoid debt by transferring money to another person or company. It is generally a civil, not a criminal matter, meaning that one cannot go to jail for it, but in some jurisdictions th ...

s. 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 appropriate

public record Public records are documents or pieces of information that are not considered confidential and generally pertain to the conduct of government. For example, in California, when a couple fills out a marriage license application, they have the opti ...

of 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 a

purchase money security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the '' collateral'') which enables the creditor to have recourse to the property if the debtor defaults in mak ...

. 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

Some

lawyer A lawyer is a person who practices law. The role of a lawyer varies greatly across different legal jurisdictions. A lawyer can be classified as an advocate, attorney, barrister, canon lawyer, civil law notary, counsel, counselor, solicito ...

s have a specialized practice area focused on the collection of such

debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The d ...

s. Such attorneys are frequently referred to as collection attorneys or collection lawyers. Attorneys who practice in the area of "creditor's rights" perform one or all of the following: *File lawsuits and using other legal collection techniques to collect consumer debts (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 a

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debto ...

proceeding *

Foreclose Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. Formally, a mort ...

on homes or commercial real estate if the purchaser defaults on payment *Recover (or

replevin Replevin () or claim and delivery (sometimes called revendication) is a legal remedy, which enables a person to recover personal property taken wrongfully or unlawfully, and to obtain compensation for resulting losses. Etymology The word "replevi ...

) secured goods (e.g., automobiles) if the purchaser defaults on payment

Creditor's power during insolvency

In the UK, once an Individual 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 appointed Insolvency Practitioner. The creditors will begin to deal with the Insolvency Practitioner and readily accept annual reports when submitted. Under the

Companies Act 2006 The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. The Act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largely ...

, 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 (

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...

s) of a company seeking to make an arrangement with the company. The Corporate Insolvency and Governance Act 2020 makes 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".UK Legislation
Corporate Insolvency and Governance Act 2020, Schedule 9: Arrangements and Reconstructions for Companies in Financial Difficulty
accessed 15 August 2020

References