Creditor

A creditor is a person or entity that is owed money by another person or entity (i.e. debtor). For example, a bank or a company that gives out mortgage loans is a creditor. In this case, the creditor is loaning money in exchange for collecting interest payments on the principal. An investor that holds a bond is also considered a creditor. A creditor often looks at the credit rating or credit score of the debtor to determine how the terms of a contract or a loan should be structured (i.e. secured debt, collateral requirements provision, default provision, etc.) and priced (i.e. counterparty risk premium). By evaluating its counterparty risk and implementing mitigation measures, a creditor tries to maximize its return on investment while minimizing risk. In the event of default by the debtor, the creditor can pursue legal actions with the appropriate court to collect on the debt owed. When the debtor files bankruptcy, the creditor will receive a bankruptcy notification. At that point, if the creditor determines that the debtor could in fact repay, such creditor has the option to pursue a non-dischargeability action with the bankruptcy court. However, if the debtor's inability to repay cannot be challenged, then the amount the creditor will recover, as well as when the creditor will recover it, will be based on the outcome of the bankruptcy proceeding.