Legal Definitions - debtor

A debtor is an individual, business, or other entity that owes a debt or obligation to another party. This obligation most commonly involves the payment of money, but it can also refer to other duties or responsibilities. The party to whom the debt or obligation is owed is known as the creditor.

The concept of a debtor applies in various legal and financial contexts:

• General Debt: In its most common form, a debtor is simply someone who has borrowed money or received goods or services on credit and is obligated to pay for them.
• Secured Transactions: In these situations, a debtor is a borrower or buyer who provides specific property (known as collateral) to secure a loan or purchase. If the debtor fails to fulfill their obligation, the creditor has a legal right to take possession of the collateral.
• Bankruptcy Law: Within the legal framework of bankruptcy, the term debtor specifically refers to the person or entity that files a bankruptcy petition (voluntary bankruptcy) or against whom such a petition is filed by creditors (involuntary bankruptcy).

Here are some examples illustrating different scenarios where someone would be considered a debtor:

• Example 1: Credit Card Usage

  Imagine Sarah uses her credit card to purchase groceries, pay for a streaming service subscription, and fill her car with gas. Each time she uses her credit card, she is essentially borrowing money from the credit card company. Sarah becomes the debtor, and the credit card company is the creditor, because she now owes the company the total amount of her purchases, which she must repay according to the card's terms.

• Example 2: Appliance Purchase on Installment

  A small restaurant needs a new commercial oven but doesn't have the full cash amount upfront. They purchase the oven from a supplier on an installment plan, agreeing to make monthly payments over two years. The agreement states that the supplier retains a security interest in the oven until it's fully paid off. In this scenario, the restaurant is the debtor, owing the supplier the purchase price of the oven, and the oven itself serves as collateral for the debt. If the restaurant defaults on payments, the supplier could potentially repossess the oven.

• Example 3: Unpaid Services

  John hires a landscaping company to redesign his backyard. The company completes the work as agreed, transforming John's outdoor space. Upon completion, the landscaping company sends John an invoice for their services. Until John pays the invoice, he is the debtor, owing the landscaping company the agreed-upon fee for the work performed. The obligation here is a direct result of receiving a service rather than a loan of money or a purchase of goods with collateral.