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What are Creditors Rights?


creditors rights

Creditor's rights refer to what creditors can do to get back money owed to them and their positioning to other creditors of the debtor. Federal and state laws such as the Fair Debt Collection Practices Act (FDCPA) restrict the ways in which creditors may attempt to collect debts.

A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property and service. The second party is frequently called a debtor or borrower. The first party is called the creditor, which is the lender of property, service, or money. Creditors can be broadly divided into two categories: secured and unsecured. Generally, secured creditors have rights based on a deed of trust, a mortgage, a security agreement on personal property like a car, or a judgment lien. Creditors with liens on property are entitled to receive value that is equal to the debt or the collateral—whichever is less.

There are several types of creditors, such as real creditors, personal creditors, secured creditors and unsecured creditors.

  • Real creditors: A real creditor is a financial institution, such as a bank or credit card issuer, that has a right to be repaid.

  • Personal creditors: These are friends or family you owe money.

  • Secured creditors: These lenders have a legal right — often through a lien — to property you used as collateral to secure the loan.

  • Unsecured creditors: A credit card issuer is a good example of this type of creditor.

Once a borrower and lender agree on terms for financing and sign a loan agreement, they’re entering into a contract. That contract often specifies the repayment agreement terms of the loan and the expected payment amounts. Ultimately, if a debtor can’t repay the funds borrowed, the creditor typically has the right to attempt recovery of what is owed, which is when repossession, foreclosure and debt collectors can come into play.

Handel & Carlini, LLP regularly advises clients concerning the workout and extension of troubled loans, restructuring of debt through out-of-court workouts, business planning formulation and structuring corporate transactions to anticipate and protect against future bankruptcies. The firm’s trusts attorneys offer sound counsel on wealth management and asset protection for individual clients. To schedule a free initial consultation to discuss your rights as a creditor in an impending bankruptcy hearing, contact a knowledgeable attorney from Handel & Carlini, LLP.

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