Debtor

Debtor summary:

• A person or business that borrows money is considered a debtor.

• Creditors are the people or entities that lend money to debtors.

• Whether being a debtor is good or bad depends on the type of debt you have and if you can afford to repay it.

Debtor Definition and Meaning

A debtor is a person or business that borrows money which must be repaid. If you're carrying any kind of debt, you are a debtor. 

You may also be called a borrower, buyer, debt holder, lessee or customer.

The term debtor is often used in bankruptcy documents. In that context, the debtor is the person who owes the debts and has filed the bankruptcy petition. 

The terms debtor and creditor are two sides of the same coin. The debtor borrows money (or purchases goods and services) from the creditor and must repay the creditor according to the agreed-upon terms.

Real-Life Examples of Debtor

A person can become a debtor for many different reasons—some uses of borrowed funds are considered good, while others are classified as bad (i.e., bad financial decisions). Whether a debtor made a good or a bad decision depends on several factors. 

Good debt buys an investment in your future: improving your earnings by going to school, or financing the purchase of a family home. Bad financing buys things that don't offer future value: restaurant meals, a vacation, or investments that fail. Frequently, the debt that purchases them outlives their useful life.

Most people think of a mortgage as good debt, because property often increases in value over time. Buying a home can build wealth and provide long-term financial benefits. 

Few people could buy a house or pay for college without borrowing some money and becoming a debtor.

On the other hand, some debt doesn’t provide future value. For instance, credit cards and personal loans are often used for purchases like dining out, fast fashion, travel, or other things that don't add long-term value. 

Becoming a debtor may be good for one person but bad for someone else—and vice versa. It depends on your situation.

Key Aspects of Debtor

The best way to deal with debt will vary based on your needs and resources. If you have the income to keep up with your payments, paying off the debt according to the terms of your agreement is the best method.

If you're having trouble keeping up with your debts and you fall behind on payments, you’ve got some options:

• Repayment plan. Some creditors will work out payment plans that allow you to make smaller payments, pay less interest, or even defer payments in some cases, such as proven financial hardship.

• Debt settlement. This is the process of negotiating with your creditors to settle a debt for less than the amount owed.

• Bankruptcy. This is a public, court-ordered process for discharging unsecured debts. The actual outcome depends on the type of bankruptcy.