What is a debtor?

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In a Nutshell

A debtor is someone who owes money to another person, or to an entity, like a financial institution. You may see the term “debtor” in various lending situations, including the mortgage process and bankruptcy.

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If you’re applying for a loan, you may be referred to as a debtor. In many cases, this is just a fancy term for “borrower.”

When it comes to financial language, there are all kinds of terms that might seem complicated or intimidating. One term you may have come across — maybe in a loan contract or other legal document — is “debtor.”

So what is a debtor? Read on to learn more.



A definition of ‘debtor’

A debtor is someone in debt from borrowing money from a person or entity such as a financial institution. Depending on the situation, “debtor” can be used a shorter term for a borrower who owes money.

You may have seen this term when considering a loan or applying for a mortgage. That’s because when you take on a loan and borrow money from someone else, you are going into debt. So, you can be referred to as a debtor.

When you might you see the term ‘debtor’

The term “debtor” can be used in a variety of financial documents, such as formal agreements like contracts. As a general rule, though, the word “debtor” may refer to anyone who has borrowed money and taken on debt.

It can also be used in more serious events, like bankruptcy. In that case, you’ll be referred to as a “debtor” in the bankruptcy proceeding. It may also come up in collection actions related to various debts, like unpaid credit card bills.

As a debtor, you borrow money from a “creditor.” Don’t be surprised if you see these two words together in financial documents.

What happens to debtors if they can’t pay?

A debtor is someone who owes money to someone or something else — often a financial institution. But simply owing money in a loan or credit card agreement isn’t a problem.

The question is what happens when the debtor can’t pay?

If a debtor cannot pay back the creditor, the debt may go to collections. In collections, a debt collector will work to get the debt repaid. Debt collectors can contact you in a number of ways but there are protections for the consumer, many of which are outlined in the Fair Debt Collection Practices Act. For example, debt collectors cannot engage in abusive or unfair practices like contacting you late at night or showing up at places they know are inconvenient for you.

As a debtor you also have the right to contact the debt collector in writing and tell them to stop communication with the collector and deal with the creditor on your own.

Can you go to jail over an unpaid debt?

You may have heard the term “debtor’s prison” — where debtors used to go if they failed to pay their debt. Debtor’s prisons no longer exist in the traditional sense (they were banned close to two centuries ago). But some companies still use the court system to seek repayment of debts — and a 2018 report from the American Civil Liberties Union says thousands of debtors are arrested and jailed each year because they owe money.

If you’re worried about debts piling up, you may want to consider contacting a credit counseling organization. The Consumer Financial Protection Bureau recommends reaching out to the National Foundation for Credit Counseling.


About the author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of thei… Read more.