Preferred Creditor

DEFINITION of 'Preferred Creditor'

An individual or organization that has priority in being paid the money it is owed if the debtor declares bankruptcy. Because bankrupt entities do not have enough money to fulfill all of their financial obligations, some investors that are owed money will get paid in part or not at all. A preferred creditor has a first claim to any funds that are available from the debtor.

BREAKING DOWN 'Preferred Creditor'

In bankruptcy cases, types of creditors that are preferred are defined by law and commonly include preferred bond holders and sometimes tax authorities. A preferred creditor can also be an economic development institution, such as the World Bank, that has priority in being repaid a loan it has made to a country in the event the country experiences a financial crisis.

RELATED TERMS
  1. Creditor

    An entity (person or institution) that extends credit by giving ...
  2. Debtor

    A company or individual who owes money. If the debt is in the ...
  3. Voluntary Bankruptcy

    A type of bankruptcy where an insolvent debtor brings the petition ...
  4. Automatic Stay

    A legal provision that temporarily prevents creditors from pursuing ...
  5. Technical Bankruptcy

    The state of a company or person who has defaulted on a financial ...
  6. 341 Meeting

    The meeting of creditors that occurs when an individual files ...
Related Articles
  1. Term

    What's a Debtor?

    A debtor​ is an individual or company that owes money.
  2. Economics

    What Does a Creditor Do?

    A creditor is a person or entity that loans money or provides goods or services to another entity with the expectation of being paid back in the future.
  3. Credit & Loans

    Credit And Debt Management: Debt Collection And Bankruptcy

    by Cathy ParetoIt's never a good day when a debt collector is knocking on your door. Not only is being on the receiving end of debt collection costly, it can be downright stressful and humiliating. ...
  4. Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

    If a company files for bankruptcy, stockholders have the most to lose. Find out why.
  5. Professionals

    Corporate Securities: Preferred Stock

    Preferred stock is not issued by all companies. It is called "preferred" because its holders receive available dividend payments before common stockholders, and they also receive payments ...
  6. Professionals

    Preferred Stock Features

    An individual investor looking into preferred stocks should carefully examine both their advantages and drawbacks.
  7. Bonds & Fixed Income

    Taking Advantage Of Corporate Decline

    A bankrupt company can provide great opportunities for savvy investors.
  8. Term

    The Advantages of Preferred Dividends

    Preferred dividends are cash distributions a company pays on its preferred shares.
  9. Professionals

    C. Why Do People Buy Common Stock?

    The main reason people invest in common stock is for capital appreciation. They want their money to grow in value over time. An investor in common stock hopes to buy the stock at a low price ...
  10. Options & Futures

    20 Investments: Preferred Stock

    What Is It? Preferred stock represents ownership in a company, but it usually does not give the holder voting rights (this may vary depending on the company). With preferred shares, investors ...
RELATED FAQS
  1. What are the full rights of creditors in cases of bankruptcy?

    Learn more about corporate bankruptcy and the rights of creditors. Find out how creditors are repaid in the event of bankruptcy ... Read Answer >>
  2. In a corporate liquidation, why are unpaid taxes and wages paid before general creditors ...

    The Bankruptcy Code, section 507, states that when a corporation is liquidated, creditors are paid in a particular order: ... Read Answer >>
  3. What is the difference between horizontal integration and vertical integration?

    Learn about the differences between bonds and preferred shares, including how payments are made on them and how corporate ... Read Answer >>
  4. Do creditors have the same rights in all 50 US states?

    Learn more about the rights of creditors to pursue their debts; how they may vary from state to state and how they are regulated ... Read Answer >>
  5. What happens if I own a stock that is purchased by another company after filing for ...

    In declaring bankruptcy, a company is basically telling the market that it owes more money than it is worth. If the company ... Read Answer >>
  6. What effect did the Bankruptcy Abuse Prevention and Consumer Protection Act of 2 ...

    Credit card companies and banks hate deadbeats who take from their bottom lines. They especially dislike the Chapter 7 bankruptcy ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center