Preferred Creditor

The preferred or privileged creditor is one who has a greater right of collection. This, in case the debtor suspends payments or announces bankruptcy and begins a procedure of liquidation of its assets .

Having the preferred category is very important for the lender . This, mainly if the debtor lacks sufficient resources to pay all his creditors .

We must take into account that in principle all lenders are in an equal position. This rule is known in civil law as CREDITORIUM CONDITION.

However, as mentioned above, the debtor does not always have the necessary funds to meet all of his financial obligations.

Characteristics of the preferred creditor

Among the characteristics of the preferred creditor are:

  • Priority:The preferred creditor will collect the debt before other lenders of the same debtor.
  • Legality:The privileged creditor status is contemplated in the legal framework. It establishes in detail, for example, the order in which equity should be distributed among shareholders . This, in case a company breaks.
  • Protection:The purpose of giving priority to one creditor over another is to privilege certain needs and avoid unprotection. This is observed, for example, in the case of workers to whom a bankrupt company owes the salary. They have preference over other creditors.

Criteria for choosing the preferred creditor

There are two criteria to determine if a creditor is preferred:

  • Guarantee: If the creditor has rights over a seizure of the debtor. It can be, for example, an object delivered as a pledge or a mortgage,  which should be used to pay a particular lender.
  • Legality:The law establishes priority in the order of payment to creditors, with different nuances in each country. In this way, normally a privileged place is given to the payment of the return and the collection of taxes .

 

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