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LSDefine
Simple English definitions for legal terms
preferred creditor
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A quick definition of preferred creditor:
A preferred creditor is someone who is owed money by another person or company, but they have a better chance of getting paid back than other creditors. This is because they have a special right to the money, like a security interest or a lien on property. Other creditors might have to wait in line to get paid, but the preferred creditor gets to go first. It's like being at the front of the line for a special treat!A more thorough explanation:
A preferred creditor is a person or entity who has a superior right to receive payment from a debtor compared to other creditors. This means that if the debtor has limited funds or assets, the preferred creditor will be paid first before other creditors.
For example, if a company goes bankrupt and owes money to both a bank and a supplier, and the bank has a perfected security interest in the company's assets, the bank will be considered a preferred creditor and will be paid first from the sale of the assets. The supplier, who is an unsecured creditor, will only be paid if there are any funds left after the bank has been paid.
Another example is a mortgage lender who has a first lien on a property. If the property is sold, the mortgage lender will be paid first from the proceeds of the sale before any other creditors who may have a claim on the property.