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Simple English definitions for legal terms
composition with creditors
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A quick definition of composition with creditors:
Composition with creditors is an agreement between a person who owes money (a debtor) and two or more people they owe money to (creditors). The agreement is that the debtor will pay the creditors less than what they owe in order to settle the debt. This is called a composition. The creditors agree to this because they would rather get some of their money back than none at all. Once the agreement is completed, the debtor is no longer responsible for the full amount owed to the participating creditors. This type of agreement is different from the preexisting-duty rule, which means that the debtor cannot use the excuse that they already owed the money before the agreement was made. Composition with creditors is also known as creditors' composition or at-termoiement.
Historically, composition with creditors was also used as a way to settle disputes between people who had been injured. Instead of seeking revenge, the injured party would accept a payment of money or goods as compensation for their injury. This helped to prevent further violence and promote peace.
A more thorough explanation:
Definition: Composition with creditors is an agreement between a debtor and two or more creditors to adjust or discharge an obligation for a lesser amount. It is an agreement among the debtor and two or more creditors that the debtor will pay the creditors less than their full claims in full satisfaction of their claims.
For example, if a debtor owes $10,000 to two creditors, they may agree to pay $6,000 in total to both creditors instead of the full amount. Through the performance of this agreement, the debtor is discharged in full for the debts of the participating creditors.
Usage: Composition with creditors is a legal way for debtors to settle their debts with creditors. It is a way to avoid bankruptcy and to pay off debts in a manageable way.
Historical Usage: In Anglo-Saxon and other early societies, a composition with the injured party was recognized as a way to deter acts of revenge by the injured party. It was a payment of money or chattels as satisfaction for an injury.
Example: John owes $20,000 to three creditors. He negotiates a composition with creditors and agrees to pay $12,000 in total to all three creditors. Through the performance of this agreement, John is discharged in full for the debts of the participating creditors.
Explanation: In this example, John is able to settle his debts with creditors by negotiating a composition with creditors. He agrees to pay less than the full amount owed, and through the performance of this agreement, he is discharged in full for the debts of the participating creditors.