DEFINITION of 'Creditor'

An entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Creditors can be classified as either "personal" or "real." Those people who loan money to friends or family are personal creditors. Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor's real assets (e.g. real estate or car) if he or she fails to pay back the loan.


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When creditors are notified of bankruptcy proceedings, they have a couple of options with respect to their claim against the debtor:

1. They can share in any distribution from the bankruptcy estate according to the priority of their claim. Most unsecured, non-wage claims come low on the priority list.

2. They can take the debtor to court and challenge a debtor's discharge (the right not to pay back) due to bankruptcy protection.

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