The principle of marshaling assets is a just rule that mandates a creditor with multiple funds to settle their debt by utilizing the fund that is not accessible to a subordinate creditor initially. This ensures that the senior creditor does not deplete the sole fund accessible to the junior creditor, thereby leaving them without any payment. It is alternatively referred to as the marshaling doctrine, rule of marshaling securities, or rule of marshaling remedies.
The Rule of Marshaling Assets, also known as the Marshaling Doctrine, Rule of Marshaling Securities, or Rule of Marshaling Remedies, is an equitable principle that mandates a senior creditor with multiple funds to satisfy their debt to first dispose of the fund not available to a junior creditor. This prevents the senior creditor from choosing to satisfy their debt out of the only fund available to the junior creditor, thereby excluding the junior creditor from any satisfaction. For example, if a debtor owes two creditors, A and B, and has two properties, Property X and Property Y, with Property X worth $100,000 and Property Y worth $50,000, Creditor A with a lien on Property X and Creditor B with a lien on Property Y, the Rule of Marshaling Assets requires Creditor A to first attempt to satisfy their debt by selling Property Y, which is not available to Creditor B. Only after exhausting all other options can Creditor A sell Property X to satisfy their debt.
The Rule of Marshaling Assets is a legal principle that allows a creditor to seek satisfaction of their debt from a specific property when the debtor owns multiple properties.
Under this rule, if a debtor owns two properties and one property is already encumbered by a mortgage or lien, the creditor can request that the debtor satisfy their debt from the unencumbered property first before resorting to the encumbered property.
No, only a creditor who has a claim against the debtor that is secured by a mortgage or lien on one of the debtor’s properties can invoke this rule.
The purpose of this rule is to ensure fairness and equitable distribution of assets among creditors. It prevents a creditor from seeking satisfaction of their debt from a property that is already encumbered, thereby preserving the rights of other creditors.
Yes, there are exceptions to this rule. For example, if the encumbered property is the debtor’s primary residence, the creditor may not be able to invoke this rule.
Yes, a debtor can challenge the application of this rule if they believe it is being unfairly used or if they have valid reasons to contest the creditor’s claim.
The applicability of this rule may vary depending on the jurisdiction. It is important to consult with a local attorney to determine if this rule applies in your specific jurisdiction.
Yes, the Rule of Marshaling Assets can be used in bankruptcy cases to determine the order in which creditors are paid from the debtor’s assets.
Yes, if the debtor’s debt is not fully satisfied from the unencumbered property, the creditor can still pursue other properties owned by the debtor to satisfy the remaining debt.
In some cases, the Rule of Marshaling Assets can be waived or modified through agreements between the debtor and creditor. However, such waivers or modifications must be voluntary and agreed upon by both parties.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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