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A creditor or lender is a
party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' party in 19th century Denmark A party is a gathering of people who have been invited by a host A host is a person responsible for guests at a ...
(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 , alter, , , , , , , , or ...
or
service Service may refer to: Activities :''(See the Religion section for religious activities)'' * Administrative service, a required part of the workload of university faculty * Civil service The civil service is a collective term for a sector of gove ...
to the second party under the assumption (usually enforced by
contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview; ...

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 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 ...
or
borrower A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that re ...

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, which is some or all of the company’s assets, to secure the debt owed to him. This could be, for example, a mortgage, where the property represents the security. *An unsecured creditor does not have a charge over the company’s assets. The term creditor is frequently used in the financial world, especially in reference to short-term
loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avail ...
s, long-term bonds, and
mortgage loan A mortgage loan or simply mortgage () is a loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money ...
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 px, Domestic credit to private sector in 2005 Credit (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, k ...
. Also, in modern America, credit refers to a
rating A rating is an evaluation Evaluation is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is ...

rating
which indicates the likelihood a borrower will pay back their loan. In earlier times, credit also referred to reputation or
trustworthiness Country-level estimates of trust Trust exists in interpersonal relationship The concept of interpersonal relationship involves social associations, connections, or affiliations between two or more people. Interpersonal relationships vary ...
.


Accounting classification

In
accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
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 Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liability, ...
**'Long-term creditors' *
Current liabilities In accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporations. Accounting, which has been calle ...
**'Current creditors'


Rights

Creditors' rights are the procedural provisions designed to protect the ability of
creditors A creditor or lender is a party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' party in 19th century Denmark A party is a gathering of people who have been invited by a host A host is ...
—persons who are owed money—to collect the money that they are owed. These provisions vary from one
jurisdiction Jurisdiction (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the ...
to another, and may include the ability of a creditor to put a
lien A lien ( or ) is a form of security interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and inv ...

lien
on a debtor's property, to effect a seizure and
forced sale A partition is a term used in the law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its envi ...
of the debtor's property, to effect a
garnishment Garnishment is a legal process for collecting a monetary judgment Judgement (or US spelling judgment) is also known as ''adjudication Adjudication is the legal process by which an arbiter or judge A judge is a person who wiktionary:presi ...
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 the ...
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 creditor's 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 option ...
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 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 (finance), collateral'') which enables the creditor to have recourse to the property if the debtor defaults in ...
. A creditor may generally ask a court to set aside a
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 the ...
designed to move the debtor's property or funds out of their reach.


Specialized legal practices

Some
lawyer A lawyer or attorney is a person who practices law, as an advocate, attorney at law, barrister A barrister is a type of lawyer in common law jurisdiction (area), jurisdictions. Barristers mostly specialise in courtroom advocacy and litigat ...

lawyer
s have a specialized practice area focused on the collection of such
debts Debt is an obligation that requires one party, the debtor A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to ...
. Such attorneys are frequently referred to as collection attorneys or collection lawyers.
Attorneys
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 A consumer is a person or a group who intends to order, orders, or uses purchased goods, products, or services Service may refer to: Activities :''(See the Religion section for religious activities)'' * Administrative service, a required part o ...
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 creditor A creditor or lender is a party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' par ...

bankruptcy
proceeding *
Foreclose Foreclosure is a legal process in which a lender A creditor or lender is a party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' party in 19th century Denmark A party is a gathering of ...
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 A legal remedy, also referred to as judicial relief or a judicial remedy, is the means with which a court of law, usually in the exercise of Civil law (common law ...
) 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 The Parliament of the United Kingdom is the of the , the and the . It alone possesses and thereby ultimate power over all other political bodies in the ...
, 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 law, trust or partnership) that is registered by the corporation as the ...
s) of a company seeking to make an arrangement with the company. The
Corporate Insolvency and Governance Act 2020 The Corporate Insolvency and Governance Act 2020 (c. 12) is an act of the Parliament of the United Kingdom The Parliament of the United Kingdom is the Parliamentary sovereignty in the United Kingdom, supreme Legislature, legislative body o ...
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


See also

*
Accounts payable Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a company's balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents. Overview An accounts ...
*
Accounts receivable Accounts receivable, abbreviated as AR or A/R, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. These are generally in the form of invoices An in ...
*
AccrualsAccrual (''accumulation'') of something is, in finance, the adding together of interest or different investments over a period of time. It holds specific meanings in accounting, where it can refer to accounts on a balance sheet that represent liabili ...
and deferred income *
Bank loan In finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, ...
and
Overdraft An overdraft occurs when money is withdrawn in excess of what is on the current account. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn i ...
s *
Bankruptcy law 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 A court order is an official ...
*
Bill of exchange A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a c ...
payable *
Collection agency Debt collection is the process of pursuing payments of debts owed by individuals or businesses. An organization that specializes in debt collection is known as a collection agency or debt collector. Most collection agencies operate as agents of c ...
*
Contract law A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview ...
*
Contribution claim (legal) A contribution claim is a claim brought by one or more defendant A defendant is a person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness, an ...
*
Creditor's rights A creditor or lender is a party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' party in 19th century Denmark A party is a gathering of people who have been invited by a host A host is ...
*
Debenture In corporate finance Corporate finance is the area of finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and ...
loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avail ...
s *
Debtor A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that ...
*
Dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

Dividend
s *
Fair Debt Collection Practices Act The Fair Debt Collection Practices Act (FDCPA), List of United States federal legislation#Public laws, Pub. L. 95th United States Congress, 95-109; 91 United States Statutes at Large, Stat. 874, codified as –1692p, approved on September 20, 1977 ...
* Individual voluntary arrangement *
IOU An IOU (abbreviated An abbreviation (from Latin ''brevis'', meaning ''short'') is a shortened form of a word or phrase, by any method. It may consist of a group of letters, or words taken from the full version of the word or phrase; for exa ...
(I Owe You) *
Payment A payment is the voluntary tender of money or its equivalent or of things of value Value or values may refer to: * Value (ethics) it may be described as treating actions themselves as abstract objects, putting value to them ** Values (Western p ...

Payment
s received on account


References

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