Debtor

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Financial Terms and Glossary

Debtor

A debtor is an individual, company, or government that owes money to another party, known as the creditor. Debtors borrow funds or receive credit with the obligation to repay the borrowed amount, usually with interest, by a specified date. The debtor’s financial health and ability to meet repayment obligations are critical for maintaining good relationships with creditors and avoiding default.

Example

A homeowner with a mortgage is a debtor to the bank, as they owe money to the bank and must repay the loan with interest over time.

Key points

• A debtor is a person or entity that owes money to a creditor.

• Debtors must repay borrowed funds, usually with interest, by an agreed-upon date.

• Debtors can be individuals, businesses, or governments.

Quick Answers to Curious Questions

What is the difference between a debtor and a creditor?

A debtor owes money, while a creditor is the party that lends the money or extends credit.

Can a company be both a debtor and a creditor?

Yes, a company can be both a debtor (when it borrows money) and a creditor (when it lends money or extends credit to others).

What happens if a debtor cannot repay their debt?

If a debtor cannot repay their debt, they may face penalties, higher interest rates, or legal action from the creditor, including potential bankruptcy.