When a debtor makes a payment to a creditor specifying how it should be applied, the creditor must apply the payment:
A) as directed by the debtor.
B) to the oldest outstanding debt.
C) to the most recent outstanding debt.
D) to the largest outstanding debt.

Question

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When a debtor makes a payment to a creditor specifying how it should be applied, the creditor must apply the payment as directed by the debtor. This is known as the payment application doctrine, which holds that a payment is applied according to the instructions of the debtor. If a debtor specifies which debt the payment is intended to satisfy, the creditor must apply the payment accordingly. Therefore, the best choice is A.

When a Debtor Makes a Payment to a Creditor Specifying