Legal Definitions - out of the money

When a creditor is described as "out of the money," it means that a debtor's available assets are insufficient to fully satisfy all outstanding debts. As a result, that particular creditor's claim will not be paid, or will only be partially paid, after higher-priority claims have been settled. This term signifies that the funds or assets have been exhausted before reaching a specific creditor in the payment hierarchy.

• Example 1: Corporate Bankruptcy

  A manufacturing company files for bankruptcy. It owes money to its primary bank (a secured creditor), its employees for unpaid wages (a priority claim), and several raw material suppliers (unsecured creditors). After the company's assets are liquidated, the proceeds are just enough to pay the bank and the employees in full. The raw material suppliers, who are lower in the payment priority, receive nothing.

  Explanation: In this scenario, the raw material suppliers are "out of the money" because the company's assets were depleted by the higher-priority claims of the bank and the employees, leaving no funds to satisfy the suppliers' debts.

• Example 2: Real Estate Foreclosure

  A homeowner defaults on their mortgage. The property has a first mortgage from a major bank, a second mortgage (a home equity line of credit) from a local credit union, and a judgment lien filed by an unpaid landscaping contractor. When the property is sold at a foreclosure auction, the sale price is only enough to cover the first mortgage and a portion of the second mortgage. There are no remaining funds for the landscaping contractor.

  Explanation: The landscaping contractor, and potentially the credit union for the remaining balance of the second mortgage, are "out of the money" because the proceeds from the property sale were insufficient to cover all the liens in their order of priority.

• Example 3: Personal Debt Collection

  An individual faces significant personal debt, including a secured car loan, student loans, and multiple credit card balances. After selling non-exempt assets and addressing priority debts in a debt settlement process, the funds are exhausted. There is nothing left to pay the outstanding balances on the credit cards.

  Explanation: The credit card companies are "out of the money" because the individual's available assets were not enough to cover their claims after higher-priority or secured debts were paid, leaving their claims unsatisfied.