A debtor or debitor is a legal entity (legal person) that owes a

debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...

to another entity. The entity may be an individual, a firm, a government, a company or other

legal person In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...

. The

counterparty A counterparty (sometimes contraparty) is a legal entity, unincorporated entity, or collection of entities to which an exposure of financial risk may exist. The word became widely used in the 1980s, particularly at the time of the Basel I deliberat ...

is called a

creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...

. When the counterpart of this debt arrangement is a

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

, the debtor is more often referred to as a borrower. If X borrowed money from their bank, X is the debtor and the bank is the creditor. If X puts money in the bank, X is the creditor and the bank is the debtor. It is not a crime to fail to pay a debt. Except in certain bankruptcy situations, debtors can choose to pay debts in any priority they choose. But if one fails to pay a debt, they have broken a contract or agreement between them and a creditor. Generally, most oral and written agreements for the repayment of

consumer debt In economics, consumer debt is the amount owed by consumers (as opposed to amounts owed by businesses or governments). It includes debts incurred on purchase of goods that are consumable and/or do not appreciate. In macroeconomic terms, it is ...

- debts for personal, family or household purposes secured primarily by a person's residence - are enforceable. For the most part, debts that are business-related must be made in writing to be enforceable by law. If the written agreement requires the debtor to pay a specific amount of money, then the creditor does not have to accept any lesser amount, and should be paid in full. Also, if there was no actual agreement but the creditor has proven to have loaned an amount of money, undertaken services or given the debtor a product, the debtor must then pay the creditor.

The history of the term “debtor”

Anthropologist David Graeber suggests in '' Debt: The First 5000 Years'' that trading began with some form of credit namely the promise to pay later for already handed over goods. Because of this it can be said that debtors and creditors existed even before the implementation of coinage. The term debtor comes from the word ''debt'', which originated from the French word ''dette'', which came from the Latin word ''debere'', meaning to owe.

Types of debtors

According to numbers released on March 31, 2013 by the U.S. Federal Reserve Board,

household debt Household debt is the combined debt of all people in a household, including consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and su ...

has passed the $11 trillion mark in the United States.

Student loan debt Student debt is a form of debt that is owed by an attending, formerly withdrawn, or graduated student to a lending institution, or to a financial institution. The amount that is loaned, often referred to as a ''student loan'' or the debts may be ...

will also soon pass the trillion-dollar mark. There are many different types of debts, that can cause the debtor and creditor relationship to arise. Some of these areas include: *Bank account debt *Trade debtors (Most commonly used in Accounting terms) *Car loan debt *

Credit card debt Credit card debt results when a client of a credit card company purchases an item or service through the card system. Debt grows through the accrual of interest and penalties when the consumer fails to repay the company for the money they have ...

*Council tax debt *Gambling debt *Legal court debt *Loan shark debt *Overdraft debt *Parking fines *Payday loan debt *Personal loan debt *Phone debt *Utility bill debts Being a debtor is not restricted to an individual, as in business there is also company debt. Many companies heavily invest in accountancy and rely on

insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet i ...

solutions to prevent debt from being left aside.

Default

Default occurs when the debtor has not met its legal obligations according to the debt contract, e.g.- it has not made a scheduled payment, or has violated a

covenant Covenant may refer to: Religion * Covenant (religion), a formal alliance or agreement made by God with a religious community or with humanity in general ** Covenant (biblical), in the Hebrew Bible ** Covenant in Mormonism, a sacred agreement b ...

in the debt contract. Default may occur if the debtor is either unwilling or unable to pay its

. This can occur with all debt obligations including bonds,

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...

s, and

promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...

s. If the debt owed becomes beyond the possibility of repayment, the debtor faces

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...

; in the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...

and some states of the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

until the mid-19th century, debtors could be imprisoned in

debtor's prison A debtors' prison is a prison for people who are unable to pay debt. Until the mid-19th century, debtors' prisons (usually similar in form to locked workhouses) were a common way to deal with unpaid debt in Western Europe.Cory, Lucinda"A Historic ...

s, while in some countries such as

Greece Greece,, or , romanized: ', officially the Hellenic Republic, is a country in Southeast Europe. It is situated on the southern tip of the Balkans, and is located at the crossroads of Europe, Asia, and Africa. Greece shares land borders with ...

debtors are still imprisoned.

Debtor in Bankruptcy and Individual Voluntary Arrangements

An Individual Voluntary Arrangement is a legally binding arrangement supervised by a licensed Insolvency Practitioner, the purpose of which is to enable an individual, sole trader or Partner ("the Debtor") to reach a compromise with his creditors and avoid the consequences of bankruptcy. The compromise should offer a larger repayment towards the creditor's debt than could otherwise be expected were the Debtor to be made bankrupt. This is often facilitated by the Debtor making contributions to the arrangement from his income over a designated period or from a third party contribution or other sources that would not ordinarily be available to a Trustee in

Bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...

Other uses

In the Latin version of the

Lord's Prayer The Lord's Prayer, also called the Our Father or Pater Noster, is a central Christian prayer which Jesus taught as the way to pray. Two versions of this prayer are recorded in the gospels: a longer form within the Sermon on the Mount in the Gosp ...

, the words ''Et dimitte nobis debita nostra/Sicut et nos dimittimus debitoribus nostris'', the words ''Debtor'' and ''Debt'' are sometimes translated as ''Sinner'' and ''Sin''. This particular understanding of sin, as a form of debt that humanity inherits, is related to the soteriological theory of

substitutionary atonement Substitutionary atonement, also called vicarious atonement, is a central concept within Christian theology which asserts that Jesus died "for us", as propagated by the Western classic and objective paradigms of atonement in Christianity, which ...

, which states that Jesus died on the cross as a propitiation, or substitute, for sinners.

References

External links

Insolvency Service websiteInsolvency Practitioners Association websiteInsolvency News
{{Authority control Debt