Legal Definitions - creditor

A creditor is a person or entity that is owed an obligation, usually in the form of money for services rendered or a loan. The person who owes the obligation is called a debtor.

Debtor-creditor law governs the relationship between creditors and debtors, including the methods that creditors can use to force debtors to fulfill their obligations. These methods include placing liens on property, garnishing income, and requiring security interests.

If a debtor is unable to repay their creditors, they may declare bankruptcy. In a bankruptcy proceeding, all of the debtor's creditors are ranked based on the type of debt they hold. Creditors with priority claims are paid first, followed by those with non-priority claims.

For example, if a person takes out a loan from a bank, the bank becomes a creditor. If the person is unable to repay the loan, the bank may use legal methods to force the person to fulfill their obligation, such as placing a lien on their property or garnishing their wages. If the person declares bankruptcy, the bank may only receive a portion of the assets available for distribution, depending on their ranking among the debtor's creditors.