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.

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