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 Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

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 legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

. The

counterparty A counterparty (sometimes contraparty) is a Juristic person, 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 ...

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 propert ...

. When the counterpart of this debt arrangement is a

bank A bank is a financial institution that accepts Deposit account, 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 m ...

, 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 ...

– 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 s ...

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

Student loan debt Student debt refers to the debt incurred by an individual to pay for education-related expenses. This debt is most commonly assumed to pay for tertiary education, such as university. The amount loaned or the loan agreement is often referred to as ...

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

accounting Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

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 ha ...

*Council tax debt *

Gambling Gambling (also known as betting or gaming) is the wagering of something of Value (economics), value ("the stakes") on a Event (probability theory), random event with the intent of winning something else of value, where instances of strategy (ga ...

debt *Legal court debt *

Loan shark A loan shark is a person who offers loans at Usury, extremely high or illegal interest rates, has strict terms of debt collection, collection, and generally operates criminal, outside the law, often using the threat of violence or other illegal, ...

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.

Legislation

In the United Kingdom, the

Administration of Justice Act 1970 The Administration of Justice Act 1970 (c. 31) is a UK act of Parliament. Section 11 reforms the Debtors Act 1869 by further restricting the circumstances in which debtors may be sent to prison. Section 40 includes a number of provisions forbi ...

protects debtors from

harassment Harassment covers a wide range of behaviors of an offensive nature. It is commonly understood as behavior that demeans, humiliates, and intimidates a person, and it is characteristically identified by its unlikelihood in terms of social and ...

intended to coerce payment of a debt.UK Legislation
Administration of Justice Act 1970
section 40, accessed on 11 July 2024

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 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 (legal system), civil law jurisdictions 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 t ...

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

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 deb ...

; 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 Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...

and some states of the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

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

debtor's prison A debtors' prison is a prison for Natural person, 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, L ...

s, while in some countries such as

Greece Greece, officially the Hellenic Republic, is a country in Southeast Europe. Located on the southern tip of the Balkan peninsula, it shares land borders with Albania to the northwest, North Macedonia and Bulgaria to the north, and Turkey to th ...

debtors are still imprisoned.

Debtor in Bankruptcy and Individual Voluntary Arrangements

Individual Voluntary Arrangement An individual voluntary arrangement (IVA) is a formal alternative in England and Wales for individuals wishing to avoid bankruptcy in England and Wales, bankruptcy. In Scotland, the equivalent statutory debt solution is known as a protected tr ...

is a legally binding arrangement supervised by a licensed

Insolvency Practitioner In the United Kingdom, only an authorised or licensed insolvency practitioner (IP) may be appointed in relation to formal insolvency procedures. Quite often IPs have an accountant, accountancy background. A few active practitioners are lawyers, ...

, 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 deb ...

Other uses

In the Latin version of the

Lord's Prayer The Lord's Prayer, also known by its incipit Our Father (, ), is a central Christian prayer attributed to Jesus. It contains petitions to God focused on God’s holiness, will, and kingdom, as well as human needs, with variations across manusc ...

, 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 Western Christian theology which asserts that Jesus died for humanity, as claimed by the Western classic and paradigms of atonement in Christianity, which r ...

, 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