Creditor
Definition
A creditor is an individual, institution, or entity that has extended credit and is therefore owed a debt. They possess a right to collect the owed amount under the terms of their agreement with the debtor. Creditors play a crucial role in finance and commerce by providing capital or resources that enable business and economic activities.
Detailed Definition
In its strict legal sense, a creditor is one who voluntarily gives credit to another for money or other property. In its more general sense, it refers to an individual or entity that has a legal right to demand and recover a sum of money from another party on any account.
Examples
- A bank that has given a mortgage loan to a homeowner is a creditor. The homeowner is obligated to make regular payments to the bank until the loan is settled.
- A credit card company, which allows consumers to make purchases on credit. The consumers owe the credit card company the amount spent, plus any applicable interest or fees.
- A supplier of goods to a business on credit terms. The business promises to pay the supplier at a later date.
Frequently Asked Questions
Q1: What is the difference between a secured and an unsecured creditor? A1: A secured creditor is one who has a claim on the debtor’s assets as collateral to secure the debt. An unsecured creditor does not have any specific assets pledged as collateral for their claims.
Q2: How do creditors enforce their rights? A2: Creditors may enforce their rights through legal actions such as filing a lawsuit, obtaining a court judgment, and enforcing the judgment through garnishment of wages or levies on bank accounts.
Q3: What happens if a debtor declares bankruptcy? A3: In bankruptcy, creditors may receive partial payment through the liquidation of a debtor’s assets or through a restructured repayment plan. Secured creditors generally have priority over unsecured creditors in such distributions.
Related Terms with Definitions
- Debtor: An individual or entity that owes money to another party (the creditor).
- Secured Debt: A debt that is backed by collateral, giving the creditor a specific claim to particular assets of the debtor.
- Unsecured Debt: A debt that is not backed by collateral, giving the creditor a general claim against the debtor’s assets.
- Credit: Agreement where a borrower receives resources (money, goods, services) under the agreement to repay in the future with interest.
- Default: Failure to repay a loan or meet contractual obligations.
Online References
Suggested Books for Further Studies
- “Debt and Equity in Domestic and International Tax Law” by Werner Haslehner and others.
- “Credit Management Kit for Dummies” by Austin Reference.
- “Bankruptcy and Debtor/creditor: Examples and Explanations” by Brian A. Blum.
- “A History of Corporate Finance” by Jonathan Barron Baskin & Paul J. Miranti.
Fundamentals of Creditor: Finance Basics Quiz
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