Legal Definitions - rule of marshaling securities

The rule of marshaling securities 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, if a debtor owes money to two creditors, and the debtor has two properties, Property A and Property B, the senior creditor has a lien on Property A, and the junior creditor has a lien on Property B. If the senior creditor chooses to satisfy their debt out of Property B, the junior creditor will not receive any satisfaction. However, the rule of marshaling securities requires the senior creditor to first dispose of Property A, which is not available to the junior creditor, before satisfying their debt out of Property B.

The rule of marshaling securities is also known as the marshaling doctrine, rule of marshaling remedies, or rule of marshaling assets.