Debtor

What Is A Debtor?

A debtor is a company or individual that owes money to banks or other individuals.

Deeper Definition

A debtor is also legally defined as someone who submits a voluntary petition to declare bankruptcy. The debtor is referred to as a borrower if the debt is in the form of a loan from a financial institution and as an issuer if the debt is in securities such as bonds.

The Fair Debt Collection Practices Act (FDCPA) is a consumer protection law created to protect debtors. When bill collectors can contact debtors, where they can call them, and how often they can call them are all outlined in this statute. It also highlights aspects of the debtor’s privacy and other rights. This rule, however, only applies to third-party debt collection services, such as businesses that attempt to collect debts on behalf of other businesses or individuals.

Consumer debtors cannot go to prison for not paying their bills (e.g., credit cards).

The Fair Debt Collection Practices Act forbids bill collectors from threatening debtors with jail time. However, judges can arrest and charge debtors for unpaid taxes or child support. If there is collateral, creditors may have alternative options, such as repossession, or they can take debtors to court for garnishments, liens, or encumbrances. Failure to pay a debt is not a crime. Debtors can prioritize their debt repayments as they like, except for specific bankruptcy scenarios. Still, if they do not fulfill the conditions of their debt, they may suffer costs and penalties. They may also suffer a decline in their credit ratings.

Debtor Example

If Joshua, who is seeking a home to use as a security for the repayment of a loan (mortgage), purchases a home after borrowing $180,000 from a bank. The $180,000 borrowed is referred to be a loan, and Joshua is now in debt to the bank. Joshua is now a debtor. Joshua, on the other hand, is expected to repay the debt over time. Mortgages are secured loans in which the borrower’s home serves as security. If Joshua fails to repay the loan, the bank can seize the property and sell it to recoup their losses.