Legal Definitions - indebtedness

Indebtedness refers to the state of owing money or other assets to another party. It also describes the total amount of money or assets that are owed.

Here are some examples to illustrate the concept of indebtedness:

• Imagine a college student who has taken out student loans to pay for tuition and living expenses. The cumulative amount of money they owe to the loan providers—including the principal borrowed and any accrued interest—represents their personal indebtedness. This financial obligation will need to be repaid over time according to the loan terms.

• Consider a small manufacturing company that purchases raw materials from various suppliers on credit and also has an outstanding loan from a bank to finance new machinery. The sum of the unpaid invoices to its suppliers and the remaining balance on its bank loan constitutes the company's total indebtedness. This figure is a critical indicator of the company's financial health and its obligations to external parties.

• A homeowner decides to refinance their existing mortgage to get a lower interest rate. Before the refinancing is complete, the amount of money still owed on their original mortgage, including any principal and interest that has not yet been paid, is their indebtedness to the initial lender. Once the new loan is finalized, their indebtedness will shift to the new lender.