A creditor is someone (or an entity) to whom an obligation is owed. Most commonly, the obligation owed is an obligation to pay money for some prior services or to pay off a loan. The person who owes a creditor an obligation is known as a debtor.
The area of debtor-creditor law governs the obligations between creditors and debtors as well as the available methods a creditor can utilize to force the debtor to satisfy those obligations. The primary judicial methods used to ensure performance of these obligations include liens on property, garnishment of income, and requiring other security interests.
In the event a debtor is unable to repay their creditors, they may choose to declare bankruptcy. If this occurs, the assets a creditor can recover are governed by bankruptcy law. In a bankruptcy proceeding, all of a debtor’s creditors are tiered in a list based on the type of debt they hold. The debtor’s assets subject to the bankruptcy proceeding are then distributed out down the list, with a lower tiered debt not receiving any of the proceeds until the higher tiered debts are entirely paid off. For example, all creditors with priority claims will be paid out before any creditors holding non-priority claims.
[Last updated in July of 2022 by the Wex Definitions Team]