Debtors: Who are they?

Who is a Debtor?

Any individual or organisation that owes money to another individual or an institution can be termed as a debtor. Financial debt incurred from a financial institution turns a debtor into a creditor. Debtee is also called an issuer in the form of securities and bonds. In legal terms, a person or institution declaring or voluntarily filing for bankruptcy is also called a debtor.

Only legal bankruptcy can be held as a crime. Failure of debt repayment may cause the lenders to charge certain fines and penalties. Debtors may get a bad credit score if the debt repayment clauses are not met. Sometimes the court may get involved if the debtor and lender do not reach a favourable agreement or debtors refuse to acknowledge their dues.

What are the various kinds of debtors?

In simple terms, a debtor is someone who has availed of goods or services and has the payment pending for the same. In terms of accounting, customers/ suppliers who owe payments are called debtors or creditors.

In monetary transactions, a ‘Debtor’ is someone who borrowed money from a financial lending institution like a public bank or NBFC and has not repaid the dues. Suppose you have borrowed money from a public or private bank for personal use. In this case, you will be the debtor, and the lending institution will be the one you owe.

You become a debtor to a financial institution if you borrow money and have not returned it. All debtors generally avail money, goods, or services on a written or a verbal agreement with the creditor regarding factors like tenure, interest, mode of repayment, etc.

When do you become a debtor?

The term ‘debtor’ may denote any person or firms/companies like banks, lending companies, businesses, etc. If one cannot complete the payment for goods or services as laid down in the agreement, the person or institution may be called a debtor. 

Debtor vs Creditor