APPROPRIATION OF PAYMENTS Meaning and
Definition
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The term "appropriation of payments" refers to the allocation or distribution of payments received by a creditor in the order of priority to different outstanding obligations or debts owed by the debtor. When a debtor owes various debts to a creditor or multiple creditors, the funds received from the debtor are distributed among the relevant debts according to a predetermined hierarchy or statutory rules.
This process is typically applied by the creditor or the debtor's financial institution to ensure that payments are allocated appropriately and in accordance with legal requirements or contractual agreements. The purpose of appropriation of payments is to apply the received funds to satisfy the outstanding obligations in the most efficient and effective manner.
The allocation of payments may be based on specific instructions provided by the debtor, specific legal requirements, or customary practices established by the creditor or industry norms. In some cases, the law or contract may dictate a specific order of priority for different types of debts, such as taxes, interest, fees, principal amounts, or certain types of debts that are legally given higher preference.
Overall, appropriation of payments plays a vital role in ensuring fair and equitable distribution of funds when a debtor has multiple outstanding obligations. It helps to streamline the debt payment process and ensures transparency, clarity, and compliance with legal and contractual obligations.
