Composition with Creditors


Also found in: Legal.

Composition with Creditors

A contract in which two or more creditors agree to accept a lump sum partial payment of a debt and write off the remainder of the debt. The creditors then split the sum in proportion to how much each one is owed. For example, suppose a debtor owes Creditor A $60,000 and Creditor B $40,000. If the debtor cannot make repayment, he/she may enter a composition with creditors for $10,000. Creditor A receives $6,000 and Creditor B $4,000; they then consider the debt paid in full.