Legal Definitions - preferred creditor

A preferred creditor is a person or entity who has a superior right to receive payment from a debtor compared to other creditors. This means that if the debtor has limited funds or assets, the preferred creditor will be paid first before other creditors.

For example, if a company goes bankrupt and owes money to both a bank and a supplier, and the bank has a perfected security interest in the company's assets, the bank will be considered a preferred creditor and will be paid first from the sale of the assets. The supplier, who is an unsecured creditor, will only be paid if there are any funds left after the bank has been paid.

Another example is a mortgage lender who has a first lien on a property. If the property is sold, the mortgage lender will be paid first from the proceeds of the sale before any other creditors who may have a claim on the property.