Debtor

What is a debtor?

A debtor is a person or business that owes money or a favor to another. In bankruptcy, a debtor is someone who files a voluntary petition to declare bankruptcy.

Deeper definition

A debtor is a person or business that owes money to another person or business. A debtor can be called a borrower if the debt is in the form of a loan from a bank or other financial institution. Credit cards, car loans and mortgages are all forms of debt.

The term debtor can be used to describe someone who files for bankruptcy relief.

Debtors are subject to contractual obligations, meaning creditors usually have the right to file a lawsuit if debtors fail to meet the terms and conditions specified in the contract. If the debt is backed by collateral such as cars, houses, bonds, stocks and/or cash, the creditor can attempt to repossess or foreclose on the collateral. In some cases, the creditor may file a lawsuit to garnish the wages of a debtor or to have another form of repayment.

In the U.S., a debtor does not go to jail for unpaid consumer debt, such as medical bills or credit cards. Under the Fair Debt Collection Practices Act (FDCPA), a set of laws that governs debt practices, a bill collector is prohibited from threatening a debtor with jail time. However, the courts can send a debtor to jail if he or she fails to pay taxes or child support.

Want to determine the easiest and fastest way to pay your debts? Use this free calculator today.

Debtor example

John takes out an auto loan to buy a car. Because he owes money on his car loan, John is a debtor. If John doesn’t keep up with loan payments, the lender (often the carmaker or dealer) can repossess the car.

Are you tired of being a slave to creditors? Find out how to break free and get out of debt.

Other Debt Terms

Consumer debts

You need to understand what consumer debts are. Here’s what to know.

Asset case

You need to understand what an asset case is. Here’s what to know.

Consent judgment

Consent judgment is a term it pays to understand. Bankrate explains it.

Consumer bankruptcy

What does consumer bankruptcy mean? Let Bankrate explain.

More From Bankrate