Legal Definitions - marshaling assets, rule of

The Rule of Marshaling Assets is an equitable doctrine that requires a senior creditor, who has two or more funds to satisfy their debt, to first dispose of the fund not available to a junior creditor. This rule prevents the senior creditor from choosing to satisfy their debt out of the only fund available to the junior creditor, which would exclude the junior creditor from any satisfaction.

For example, let's say a debtor owes two creditors, A and B. The debtor has two properties, Property X and Property Y. Property X is worth $100,000, and Property Y is worth $50,000. Creditor A has a lien on Property X, and Creditor B has a lien on Property Y. If the debtor defaults on their debt, Creditor A can only satisfy their debt by selling Property X. However, the Rule of Marshaling Assets requires Creditor A to first attempt to satisfy their debt by selling Property Y, which is not available to Creditor B. Only after exhausting all other options can Creditor A sell Property X to satisfy their debt.

The Rule of Marshaling Assets is also known as the Marshaling Doctrine, Rule of Marshaling Securities, or Rule of Marshaling Remedies.