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Debtor

Reviewed by Bhavana | Updated on Oct 05, 2020

Catalogue

Meaning of Debtor

A debtor is an individual or organisation that owes the money. In case the debt is in the form of a loan from a financial institution, the debtor is referred to as a creditor, and the debtee is referred to as an issuer in the form of securities, like bonds. Legally, anyone who files a voluntary petition for bankruptcy declaration is often called a debtor.

Failure to pay a debt is no crime. With the exception of such bankruptcy cases, debtors may prioritise their debt repayments as they wish, but if they fail to uphold their debt terms, they can face fines and penalties, as well as a decrease in their credit score. In addition, the creditor can bring the debtor to the court regarding the matter.

How Does One Become a Debtor?

The term 'debtor' refers to individuals as well as other firms, banks, lending companies, and more. If anyone owes payment for goods or services given to an entity or a company, the person owing may be called a debtor.

Kinds of Debtors

In general, a debtor is a customer who has purchased a good or service and, therefore, owes the payment in return to the supplier. Customers/suppliers are called debtors/creditors for accounting purposes.

'Debtor' refers not only to a goods and services client but also to someone who borrowed money from a bank or lender. For example, if you take a loan to buy your house, then you are a debtor in the sense of borrower, while the bank holding your mortgage is considered to be the creditor.

Generally speaking, if you borrow money, then you are a debtor to the loan provider. Every debtor typically has a formal agreement with the creditor (supplier/lender) regarding terms of payment, discount deals, etc.

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