Debtor/Creditor Basics

What is a debtor?

A debtor is an entity (a person or business) that owes money to someone else. If the debt is in the form of a loan from a financial institution, the debtor is referred to as the borrower. If the debt is in the form of securities (bonds, for example), the debtor is referred to as an issuer.

What is a creditor?

A creditor is an entity (a person or institution) to which money (or its equivalent) is owed. Creditors allow others to borrow money to be repaid at a later date. Creditors can be broken into two basic categories: “personal” or “real.”

“Personal” creditors are people who loan money to friends or family.

“Real” creditors are typically banks or finance companies that have contracts with the debtor (borrower or issuer) that allow the creditor to claim the debtor’s assets (property or vehicle) if the debtor fails to pay back the loan.

If you fail to pay a debt, it is not a crime.

Most of the time, except in some bankruptcies, debtors can pay debts in any order they choose.

However, if you fail to pay a debt, you have broken a contract or agreement between you (the debtor) and someone else (the creditor), and the creditor can often collect on the debt.

Even if you cannot repay the debt, the creditor is still allowed to collect on the debt. Often, the creditor will assign your debt to a debt collection agency or debt collection lawyer, whose job it is to collect your debt on behalf of the creditor.