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Simple English definitions for legal terms
marshaling assets, rule of
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A quick definition of marshaling assets, rule of:
The rule of marshaling assets is a fair principle that requires a creditor who has multiple funds to pay off their debt to use the fund that is not available to a junior creditor first. This prevents the senior creditor from using the only fund available to the junior creditor and leaving them with no payment. It is also known as the marshaling doctrine, rule of marshaling securities, or rule of marshaling remedies.
A more thorough explanation:
The Rule of Marshaling Assets is an equitable doctrine that requires a senior creditor, who has two or more funds to satisfy their debt, to first dispose of the fund not available to a junior creditor. This rule prevents the senior creditor from choosing to satisfy their debt out of the only fund available to the junior creditor, which would exclude the junior creditor from any satisfaction.
For example, let's say a debtor owes two creditors, A and B. The debtor has two properties, Property X and Property Y. Property X is worth $100,000, and Property Y is worth $50,000. Creditor A has a lien on Property X, and Creditor B has a lien on Property Y. If the debtor defaults on their debt, Creditor A can only satisfy their debt by selling Property X. However, the Rule of Marshaling Assets requires Creditor A to first attempt to satisfy their debt by selling Property Y, which is not available to Creditor B. Only after exhausting all other options can Creditor A sell Property X to satisfy their debt.
The Rule of Marshaling Assets is also known as the Marshaling Doctrine, Rule of Marshaling Securities, or Rule of Marshaling Remedies.