What does proportionate adjustment refer to?

Proportionate adjustment refers to the distribution of payments among debts that have the same date or are of equal standing, ensuring that each debt receives a fair share relative to the total amount owed. This approach is particularly relevant when a debtor lacks sufficient funds to fully settle all obligations at once.

When debts are of the same date, each creditor is treated equally, and the available funds are divided proportionally to the amounts owed. This method is equitable as it ensures that all creditors with similar claims receive a consistent treatment, fostering fairness in the debt settlement process.

In contrast, other approaches, such as prioritizing debts by age or importance, do not apply in this scenario. For instance, full payment of the oldest debt first would ignore more recent obligations, and settling debts based on priority would lead to unequal treatment among creditors. These alternatives do not reflect the principle of proportionate adjustment, which seeks to balance payment distribution among debts of equal seniority.