Legal Definitions - debt

Debt refers to a financial obligation where one party (the debtor or borrower) owes money or other assets to another party (the creditor or lender). It represents a commitment to repay a sum, often including an additional charge called interest, by a specified date or over a period. Debt can arise from various transactions, such as borrowing money, purchasing goods or services on credit, or failing to pay for something when due.

Here are some examples illustrating the concept of debt:

• Personal Home Mortgage: When Maria buys a house, she typically takes out a mortgage loan from a bank. The bank provides her with a large sum of money to purchase the property, and in return, Maria agrees to repay that sum (the principal) plus interest over many years.

  How this illustrates debt: Maria is the debtor, owing a significant financial obligation to the bank, which is the creditor. Her mortgage is a form of debt, representing her promise to repay the borrowed funds for her home.

• Small Business Loan: A local coffee shop owner, David, wants to expand his business by opening a second location. To fund the renovation and purchase new equipment, he secures a loan from a credit union.

  How this illustrates debt: David's coffee shop is the debtor, having a financial obligation to the credit union (the creditor). The loan is a debt that the business must repay, along with any agreed-upon interest, to finance its growth.

• University Student Loans: A student, Alex, needs financial assistance to cover tuition and living expenses while attending university. He applies for and receives several student loans from both government and private lenders.

  How this illustrates debt: Alex is the debtor, and the government and private lenders are the creditors. His student loans represent a substantial debt that he will be obligated to repay, typically with interest, after he graduates.