creditor

(noun)

A person to whom a debt is owed.

Related Terms

Examples of creditor in the following topics:

  • Secured vs. Unsecured Funding

    • Repossession is a legal process in which property, such as a car, is taken back by the creditor.
    • By extending the loan through secured debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid.
    • The creditor may offer a loan with attractive interest rates and repayment periods for the secured debt.
    • In the event of the bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the borrower after the specific pledged assets have been assigned to the secured creditors, although the unsecured creditors will usually realize a smaller proportion of their claims than the secured creditors.
    • In some legal systems, unsecured creditors who are also indebted to the insolvent debtor are able (and in some jurisdictions, required) to set-off the debts, which actually puts the unsecured creditor with a matured liability to the debtor in a pre-preferential position.

  • Owners' Equity

    • At first, all the secured creditors are paid against proceeds from assets.
    • Afterward, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds.
    • Ownership equity is the last or residual claim against assets, settled only after all other creditors are paid.
    • In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity; which is thus reduced to zero.

  • Corporate Bonds

    • ., a car or property) as collateral for the loan, which in turn becomes a secured debt owed to the creditor of the loan.
    • The debt is thus secured against the collateral, and in the event that the borrower defaults, the creditor takes possession of the collateral asset and may sell it in order to recover some or all of the amount loaned.
    • In the case of unsecured debt, the absence of collateral means that the creditor may only satisfy the debt against the borrower.
    • In the event of bankruptcy or liquidation, senior debt must be repaid before any other creditors receive payment.
    • Subordinated debt has a lower priority than the issuer's other bonds and ranks below the liquidator, government tax authorities, and senior debt holders in the hierarchy of creditors.

  • Collection from Delinquent Payables

    • A charge-off is the declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected.
    • Traditionally, creditors will make this declaration at the point of six months without payment.
    • In the United States, Federal regulations require creditors to charge-off installment loans after 120 days of delinquency, while revolving credit accounts must be charged-off after 180 days.Figure 1
    • The creditor legally has the right to collect the full amount for time periods permitted by the laws of places of the location of the bank and where the consumer resides.
    • A charge-off is the declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected.

  • Advantages and Disadvantages of Partnerships

    • For example, if a partnership defaults on a payment to a creditor, the partners' personal assets are subject to attachment and liquidation to pay the creditor.
    • A partner's judgment creditor may obtain an order charging the partner's "transferable interest" to satisfy a judgment.

  • Advantages of Corporations

    • For example, if you decide to invest $100,000 in a tech start up, but it goes bankrupt in a year and has debts of $1,000,000, you will only lose your $100,000 and the creditors cannot sue you for the $900,000 that they have lost.
    • The economic rationale for this is that it allows anonymous trading in the shares of the corporation by eliminating the corporation's creditors as a stakeholder in such a transaction.
    • Without limited liability, a creditor would probably not allow any share to be sold to a buyer at least as creditworthy as the seller.

  • Commercial Banks

    • ., a car or property) as collateral for it, which then becomes a secured debt owed to the creditor who gives the loan.
    • In the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower.

  • The Imperative of Liquidity

    • Since cash flows are vital to a company's financial health, the statement of cash flows provides useful information to management, investors, creditors, and other interested parties.
    • The information in a statement of cash flows assists investors, creditors, and others in assessing the following:

  • Limited Liability Companies (LLCs)

    • Before you close the business you may have to pay your creditors.
    • If this amount does not satisfy the creditors, they cannot take away your personal property to settle the debt.
    • The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor's share of distributions, without conferring any voting or management rights on the creditor.

  • Debt Finance

    • A debt obligation is considered secured, if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company.
    • Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims.
    • A risk-free rate is also commonly used in setting floating interest rates, which are usually calculated as the risk-free interest rate plus a bonus to the creditor based on the creditworthiness of the debtor (in other words, the risk of him or her defaulting and the creditor losing the debt).