What is a debtor? | The bank rate

A debtor is someone who owes money, usually to a bank or other financial institution. When you borrow money, whether through a loan or a credit card, your lender is considered the creditor. It gives you money when you need it and makes payments until you pay back what you borrowed. If the lender is the creditor, that makes you the debtor.

What is a debtor?

A debtor is a person or business that owes money to another person or business. If you are a debtor, you are indebted to someone else. Sometimes a debtor refers to someone who declares bankruptcy.

A borrower and a debtor are almost interchangeable terms. A borrower owes a debt to a lender or financial institution when borrowing money. They usually fulfill applications and have legal obligations when they borrow money – in other words, if you take out a loan, you have a contractual obligation to pay it back.

Debtor Example

Debtors are not always individuals, but in many cases they are. Debtors are people or companies who have:

  • Mortgages.
  • Student loans.
  • Personal loans.
  • Car loans.
  • Small business loans.
  • Credit card.
  • Business credit cards.

why is it important

If you are a debtor, you have certain financial responsibilities. The type and amount of debt you have can affect your credit score, so it’s important that you know what debt you currently have and what strategies you can adopt to pay it off.

What is the difference between a debtor and a creditor?

While a debtor is a person who owes someone else money, a creditor is a person or business that they owe money to.

You may hear a borrower refer to a debtor, since it is someone who is in debt. A lender – the entity that lends money to a person or business – is the creditor. Creditor, lender and issuer are generally interchangeable terms.

What laws protect debtors?

There is nothing wrong with being a debtor; people and businesses borrow money from other businesses all the time. They make payments on their terms and often pay off their loan or credit card without cause for concern. But there are cases when debtors cannot pay.

If you can’t pay your debt, it will eventually be considered past due and if you don’t pay it long enough, it may become unpaid. Your debt may be subject to collections approximately 180 days of non-payment. This is when your creditor sells your old debt to a third party company for less than what you owe and the new company starts contacting you in an attempt to collect the old debt.

Although you have already been contacted by debt collection agencies, you have protections against illegal companies trying to charge you. The Fair Debt Collection Practices Act (FDCPA) is a consumer law designed to protect you from deceptive and abusive debt collection practices.

Under the FDCPA, debt collectors cannot contact you between 9 p.m. and 8 a.m., and they cannot contact you at work. But they can call, text, and send emails or letters to try to collect an unpaid debt. By law, they are not allowed to:

  • Use harmful or obscene language.
  • Threatening you with physical harm or imprisonment.
  • Lie about the debt you have or what happens to you if you don’t pay your debt.

Debt collectors can keep trying to collect the debt until you’ve paid your debt in full, but the statute of limitations on old debts means they only have a certain number of years to sue you. in court for this old debt. The statute of limitations varies by state and the debt in question. You can restart the clock on an old debt if you acknowledge it or even make a partial payment on it.

If you fail to make payments on the secured debt, you could lose your collateral. For example, if you stop making mortgage payments, your home could be subject to foreclosure. But it usually happens around 120 days after non-payment.

Last takeaways

Don’t be put off by the debtor label. While debt tends to get a bad rap, it simply means that a person or business owes another person or business money. This is the norm when talking about money in an official capacity. However, before authorizing an application or signing a contract, read the fine print so you know what to expect if you cannot repay your debt.

Learn more: