Question

Mike owes $12,000 to Nora, $6,000 to Owen, and $6,000 to Pat. The three creditors enter into an agreement with Mike to discharge the debts on payment of a sum of $12,000 to them, to be divided proportionately. This is_______.

Answer 1

A composition agreement.

Step-by-step explanation:

A composition agreement is an agreement between insolvent debitor and two or more creditor, that each of the creditor will get some specified amount, which will be less than their actual claim. Creditors agree and accept the agreement in full satisfaction. According to the agreement, the lump sum amount is proportionately divided among creditors, who accept the offer in the agreement. Creditor who decline the offer are not bound by the agreement.