creditor Wex LII Legal Information Institute
(s) and (t). Former subsecs. (s) and (t) redesignated (x) and (y), respectively.
The management of creditors is crucial for a company’s liquidity and financial stability. 1980—Subsec. Creditors are the opposite of debtors. They’re institutions, businesses, or individuals that extend credit to debtors. Creditors can be persons or entities, just like debtors. They can also be companies that provide supplies.
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The lenders are allowed to recoup funds equal to their outstanding debts—not including any interest. If there is any money left over at the end of the liquidation, investors will also be paid. A creditor is a person or entity that lends money or extends credit to another person or entity. In other words, a creditor is someone who is owed money by someone else. Creditors can be individuals, businesses, or financial institutions. A creditor is a natural or legal person who supplies goods or services to a company on a credit basis.
Debtor vs. Creditor
Credit scores are one way that individuals are classified in terms of risk, not only by prospective lenders but also by insurance companies and, in some cases, landlords and employers. For example, the commonly used FICO score ranges from 300 to 850. Anyone with a score of 800 or higher is considered to have exceptional credit, 740 to 799 represents very good credit, 670 to 739 is good credit, 580 to 669 is fair, and a score of 579 or less is poor. The process of debt collection may be impeded by exemption laws, which provide that certain property of the debtor may not be seized and sold in order to discharge a debt.
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A creditor could be a bank, supplier or person that has provided money, goods, or services to a company and expects to be paid at a later date. In other words, the company owes money to its creditors and the amounts should be reported on the company’s balance sheet as either a current liability or creditor definition a non-current (or long-term) liability. In the event a debtor is unable to repay their creditors, they may choose to declare bankruptcy. If this occurs, the assets a creditor can recover are governed by bankruptcy law. In a bankruptcy proceeding, all of a debtor’s creditors are tiered in a list based on the type of debt they hold. The debtor’s assets subject to the bankruptcy proceeding are then distributed out down the list, with a lower tiered debt not receiving any of the proceeds until the higher tiered debts are entirely paid off.
- The basic concept has been the same for thousands of years.
- Debtors are individuals or businesses that owe money to banks, individuals, or companies.
- In fields for which adequate private financing is not available, governments may extend credit.
- (s) and (t) as (x) and (y), respectively.
One type is the home equity line of credit (HELOC), which allows owners to borrow against the value of their home for renovations or other purposes. Credit is also used as shorthand to describe the financial soundness of businesses or individuals. Someone who has good or excellent credit is considered less of a risk to lenders than someone with bad or poor credit. Credit is a contractual agreement in which a borrower receives a sum of money or something else of value and commits to repaying the lender later, typically with interest. This is why it is critical that creditors use the financial statements to assess the how creditworthy a company is. Being external users, lenders must rely on the balance sheet, income statement, and statement of cash flows to make their judgments about the company and its financial position.
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Paying loans on time can help avoid fees—and it’s also one way to build credit. For effective date of amendment by Pub. 93–495, see section 308 of Pub.
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Anyone who lends money on condition of repayment can be classified as a creditor. The basic concept has been the same for thousands of years. Although these days, the credit system is more complex. That’s the quick and easy definition, but of course there’s a lot more to creditors and their relationship to borrowers. Explore the different kinds of creditors and what can happen if a creditor doesn’t receive repayment.
- 110–289, July 30, 2008, 122 Stat.
- Debt collectors can’t threaten debtors with jail time but courts can put debtors in jail for unpaid child support in some cases.
- One way creditors can make money is by charging interest on the credit they extend.
- Some creditors, such as banks and other lenders, have lent money to the company and will require the company to sign a written promissory note for the amount owed.
(5) and redesignating former par. (5) as (6), was executed by making the amendment to subsec. (bb) to reflect the probable intent of Congress and the redesignation of subsec. 2018—Subsecs. (cc), (dd).
2009—Subsec. (bb)(5), (6). 111–203, § 1431(c)(2), which directed amendment of subsec. (aa) by adding par.
Common examples include car loans, mortgages, personal loans, and lines of credit. Essentially, when the bank or other financial institution makes a loan, it “credits” money to the borrower, who must pay it back at a future date. A creditor extends credit, whether in the form of money, goods, or services. Some creditors can repossess collateral like homes and cars on secured loans and can take debtors to court over unsecured loans. The accounts payable target refers to the period of time that a company has agreed with its suppliers or service providers within which invoices for goods delivered or services rendered must be paid.
This variety of creditors often provides large loans such as mortgages and car loans. Family or friends can also be considered creditors if they’ve lent money. They’re personal creditors.