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Simple English definitions for legal terms
rule of marshaling assets
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A quick definition of rule of marshaling assets:
The rule of marshaling assets is a fair rule that says if a person owes money to two or more creditors, they must first use the money from the fund that is not available to the junior creditor to pay off the senior creditor. This prevents the senior creditor from taking all the money from the only fund available to the junior creditor, which would be unfair. It is also called the marshaling doctrine, rule of marshaling securities, or rule of marshaling remedies.
A more thorough explanation:
The rule of marshaling assets is a legal principle that requires a creditor who has multiple sources of payment to first use the source of payment that is not available to a junior creditor. This principle is used to prevent a senior creditor from unfairly excluding a junior creditor from receiving any payment.
For example, let's say that a senior creditor has a mortgage on a property and a junior creditor has a lien on the same property. If the property is sold, the senior creditor must first use any other available funds to satisfy their debt before using the proceeds from the sale of the property. This ensures that the junior creditor will still receive some payment from the sale.
Another example would be if a company has multiple assets that can be used to pay off debts. If a senior creditor has a claim on one of those assets, they must first use the other assets to satisfy their debt before using the asset that is also available to a junior creditor.
The rule of marshaling assets is an important principle in ensuring fairness in debt repayment and preventing senior creditors from unfairly excluding junior creditors from receiving payment.