Marshaling

Marshaling is a legal principle that allows a court to require a creditor with multiple securities to pursue a particular asset in order to satisfy a debt, thereby protecting the interests of other creditors. This principle aims to ensure equitable treatment among creditors when a debtor has more than one asset available to satisfy their obligations.

The concept of marshaling has its roots in equity law, becoming established in English common law to prevent a creditor from unfairly benefiting at the expense of others. Over time, this maxim has been adopted in various jurisdictions as a means of promoting fairness in the settlement of debts.

In modern law, marshaling is often applied in bankruptcy cases and foreclosure proceedings where multiple creditors may have claims against a debtor’s assets. Courts may order a creditor to exhaust specific collateral first before accessing other assets, thereby protecting subordinate creditors from being unjustly prejudiced.

• In a bankruptcy case, if a debtor has two properties and multiple creditors, a secured creditor may be required to pursue the value of one property first, thereby preserving the second property for other unsecured creditors.
• During a foreclosure sale, a lender may be required to sell a specific piece of collateral first to satisfy its claim, rather than liquidating all of the debtor's assets immediately.

• Mason v. Baird, 14 Ill. 2d 207 (1958)