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Simple English definitions for legal terms
creditors' composition
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A quick definition of creditors' composition:
Creditors' composition is an agreement between a person who owes money (a debtor) and two or more people they owe money to (creditors). The agreement is that the debtor will pay the creditors less than what they owe in order to settle the debt. This is called a composition. The creditors agree to this because they would rather get some of their money back than none at all. Once the agreement is completed, the debtor is no longer responsible for the full amount owed to the participating creditors. This type of agreement is different from the preexisting-duty rule, which says that a person cannot get out of a debt by promising to do something they were already obligated to do. In a creditors' composition, each creditor agrees to take less than what they are owed, so there is new consideration for the agreement. In the past, a composition could also mean paying someone money or goods to make up for harm done to them, but this is not the common meaning today.
A more thorough explanation:
Creditors' composition is an agreement between a debtor (someone who owes money) and two or more creditors (people or companies who are owed money) to adjust or discharge an obligation for a lesser amount. This means that the debtor will pay the creditors less than what they are owed, but in full satisfaction of their claims.
For example, if a debtor owes $10,000 to two creditors, they may agree to pay each creditor $5,000 instead of the full amount owed. Through this agreement, the debtor is discharged (released) from their debts to the participating creditors.
This type of agreement is different from the preexisting-duty rule, which means that a debtor cannot use an agreement to pay less than what they owe if they already had a legal obligation to pay the full amount. However, in a creditors' composition, each creditor agrees to take less than full payment, so consideration (something of value) arises from the agreement.
Historically, a composition with the injured party was recognized as a way to deter acts of revenge by the injured party. For example, in Anglo-Saxon societies, a person who caused an injury could pay a composition (a payment of money or chattels) to the injured party as satisfaction for the injury, instead of facing revenge or punishment.