What Is a Debtor?

A debtor is a company or individual who owes money. The debtor is referred to as a borrower when the debt is in the form of a loan from a 澳洲幸运5官方开奖结果体彩网:financial institution and as🏅 an issuer if the debt is in the form of securities such as bonds.

If a debtor cannot fulfill their obligations they may have to declare 🅰bankruptcy.

Penalties for Debtors

It's not a crime to fail to pay a debt. Debtors can prioritize their debt 澳洲幸运5官方开奖结果体彩网:repayments as they like except in certain bankruptcy situations. They may face 🌊fees and penalties as well as drops in their credit scores if they fail to honor the terms of their debt, however.

A creditor may also take a debtor to court for failure to pay and this can lead to 澳洲幸运5官方开奖结果体彩网:liens or encumbrances.

Debtor vs. Creditor

Creditors are the opposite of debtors. They're institutions, businesses, or individ༒uals that extend credit to debtors. Creditors can be persons or entities, just like debtors. They can also be companies that provide supplies. A company acts as a creditor when it offers supplies or services and agrees to accept payment at a later time.

Family or friends can also be considered creditors if they’ve lent money. They're personal creditors. Real creditors are banks or finance companies with legal contracts. Creditors make money off debtors by charging them fees or interest.

Can Debtors Go to Jail for Unpaid Debts?

Debtors' prisons were once relatively common in the early U.S. until they were banned by federal law in 1833. Despite the ban, they have survived in some forms. Debtors don't go to jail for unpaid consumer debt such as credit cards or medical bills in contemporary times. The laws governing debt collection practices activities are included in the 澳洲幸运5官方开奖结果体彩网:Fair Debt Collection Practices Act (FDCPA). They forbid bill collectors from threatening debtors with jail time.

The court can send debtors to jail for unpaid child support in some cases. Child support arrears cases become a federal court issue when the amount owed exceeds $5,000 and/or the payments are more than a year overdue. This type of debt is otherwise handled by state and local courts.

There are some exceptions to this rule. A debtor who has been ordered by the court to pay a debt and misses a payment can be held in contempt of court in some states and this can result in jail time and could indirectly send the person to jail for being a debtor.

What Laws Protect Debtors?

The FDCPA is a consumer protection law that's designed to protect debtors. It outlines when bill collectors can call debtors, where they can call them, and how often they can call them. It also emphasizes elements related to the debtor's privacy and other rights but this law only pertains to third-party debt collection agencies, companies that are trying to collect debts on behalf of other companies or individuals.

What Can a Creditor Do If a Debtor Doesn't Pay?

Creditors do have some recourse to collect when a debtor fails to pay a debt. They can attempt to repossess the collateral if the debt is backed by it, such as mortgages and car loans that are backed by houses and cars. The creditor can also take the debtor to court in an attempt to have the debtor's wages garnished or to secure another type of repayment order.

Example of a Debtor

Consider Sal who's looking to take out a mortgage to buy a home. Sal works with a bank to finance a property. The resulting loan is for $250,000. Sal now owes the bank $250,000 and is in debt to them, making them a debtor. The bank is the creditor. Sal's home is used as collateral for the mortgage loan.

The bank can t🧔ake possession of the property through foreclosure and sell it to♓ recoup the money owed if Sal defaults on the mortgage.

The Bottom Line

Debtors owe money to individuals or companies such as banks. They can be individuals or companies and are referred to as borrowers if the debt is from a bank or a financial institution. Debtors who cannot pay their debts can file for bankruptcy. Debtors can't go to jail for unpaid consumer debts. Debt collectors can't threaten debtors with jail time but courts can put debtors in jail for unpaid child support in some cases.