A preferred creditor is an individual or entity that is owed money by another party, but has a higher likelihood of being repaid compared to other creditors. This is due to their possession of a specific right to the funds, such as a security interest or a lien on property. While other creditors may have to wait their turn to receive payment, the preferred creditor is given priority and gets to be at the front of the line, similar to receiving a special treat.
A preferred creditor is given priority over other creditors in receiving payment from a debtor. This means that if the debtor has limited funds or assets, the preferred creditor will be the first to be paid. For instance, in the case of a company going bankrupt and owing money to both a bank and a supplier, if the bank has a perfected security interest in the company’s assets, it will be considered a preferred creditor and will be paid first from the sale of the assets. On the other hand, the supplier, being an unsecured creditor, will only receive payment if there are any funds remaining after the bank has been paid. Another example is a mortgage lender who holds the first lien on a property. If the property is sold, the mortgage lender will be the first to receive payment from the proceeds of the sale, before any other creditors with a claim on the property.
A preferred creditor is a creditor who has a higher priority in receiving payment from a debtor’s assets compared to other creditors. This priority is usually determined by law or a specific agreement.
A creditor can become a preferred creditor through various means, such as having a security interest in the debtor’s property, holding a valid lien, or being granted preferred status by law.
Preferred debts can include certain taxes owed to the government, employee wages and benefits, child support or alimony payments, and debts secured by collateral, among others. The specific types of preferred debts can vary depending on the jurisdiction.
Yes, a creditor can lose its preferred status if the conditions that granted them that status are no longer met. For example, if a creditor’s lien is released or the collateral securing the debt is sold, the creditor may lose its preferred status.
Being a preferred creditor generally means that the creditor will have a higher chance of receiving payment compared to other creditors. When a debtor’s assets are distributed, preferred creditors are typically paid before other creditors.
In some cases, yes. If a debtor’s assets are insufficient to cover all debts, preferred creditors may receive full payment while other creditors receive nothing or only a portion of their debt.
In some situations, a debtor may have the ability to choose which creditors to prefer. However, this is often subject to legal limitations and may not be possible in all jurisdictions.
In certain circumstances, a preferred creditor may be able to challenge its preferred status. This could occur if the creditor believes that the conditions for preferred status were not met or if there are disputes regarding the validity of the debt.
Yes, in some cases, a preferred creditor can be paid before a secured creditor. This can happen if the preferred creditor’s debt is considered higher in priority than the secured creditor’s debt.
No, preferred creditors generally have a higher priority than unsecured creditors. Unsecured creditors are typically paid after preferred creditors, if there are any remaining assets available for distribution.
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.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
- Page URL:https://dlssolicitors.com/define/preferred-creditor/
- Modern Language Association (MLA):Preferred Creditor. dlssolicitors.com. DLS Solicitors. May 09 2024 https://dlssolicitors.com/define/preferred-creditor/.
- Chicago Manual of Style (CMS):Preferred Creditor. dlssolicitors.com. DLS Solicitors. https://dlssolicitors.com/define/preferred-creditor/ (accessed: May 09 2024).
- American Psychological Association (APA):Preferred Creditor. dlssolicitors.com. Retrieved May 09 2024, from dlssolicitors.com website: https://dlssolicitors.com/define/preferred-creditor/
Our team of professionals are based in Alderley Edge, Cheshire. We offer clear, specialist legal advice in all matters relating to Family Law, Wills, Trusts, Probate, Lasting Power of Attorney and Court of Protection.
All author posts