Creditors' Rights and Bankruptcy



Creditors' Rights and Bankruptcy

Laws Assisting Creditors

Creditor protection refers to safeguard creditors and limit the loss incurred in care of default by debtors on outstanding debt. There are laws and procedures meant to protect the creditors with appropriate courses of action in the case if debtor cannot or does not honor an outstanding debt and creditor protection guides the creditor to carry one with his or her business. The protection cures the injury that may be caused to other clients who might be hurt financially if the business is ceased and the operations are turned off. In addition, it assures that the creditor is not financially dented due to debtor's default (Warren, 1923). This protection is of different forms, line insurance creditor protects safeguards the creditor in the case of death of debtor before complete payment of his or her total debt. It rather served the interests of both parties; the creditors and the legatees of the deceased in a way that the outstanding debt is settled in full as per the agreement by the insurance provider without harming the assets of the estate.

Each legal system sets the protection of creditors of a company through various legal instruments, private partnership. In some cases, these rules have corporate status and in others, having the nature of bankruptcy. The creditor has the option to redeem the principal obligation on the debtor's assets or to require the penalty to the guarantor. As per the rule, the penalty clauses are intended to be an assessment of damages in advance (Mansi et al, 2009). It serves as a conventional way of punishment and facilitates the payment caused by damage. However, it may not be invoked by the debtor in case the failure to execute the agreement has not inflicted harm to the creditor or has produced any additional benefit.

In case of private law, the penalty clauses perform the functions of pressure, assurance, and assessment of damages under the doctrine. The interpretation of these provisions is also a crucial issue. Moreover, it follows that if there is doubt in the interpretation of a particular provision, it should be seen as an estimate of the damages (Warren, 1923). The rule of law is that debtors comply with the obligations they have undertaken, making the respective payment to the creditor, who has the right to demand it. The payment fulfills the obligation and the contract terminates automatically. The possibility exists that the debtor dishonors his commitment. This induces the creditor to use his right of compensation or other action as deemed appropriate. In case of delay, the creditor can go to court and claim the authorities to run and compel compliance with the agreement, up to the extent to which the contract is eligible to serve as executable by the judge, and obligations can be executed by the concerned authorities. This rule of law is applied on the all the contracts. The decision depends upon two situations. First is the case of arrears when the debtor ...