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What is a debtor?

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A debtor is a legal entity that owes another entity money. Entities can include governments, an individual, a firm, or a company. If the debt is a loan from a financial institution, the debtor is called a borrower. If the debt is related to securities—such as bonds—the debtor is called an issuer. A person who voluntarily declares bankruptcy is also considered a debtor.

Can Debtors Face Legal Prosecution in the US?

In the US, it is not considered a crime to fail to pay a debt, aside from specific bankruptcy situations. Debtors can choose how to repay their debt, but will face fees, penalties, and credit score drops if they do not honor the terms of their debt. Creditors can also take the debtor to court over the issue. Debtors do not go to jail for unpaid consumer debt such as credit cards or medical bills, but may face jailtime for unpaid taxes or child support.

What is a creditor?

Creditors are those who loan a party money. Creditors can be individuals or entities. In finance, creditors are banks or finance companies that create legal contracts and loan agreements with the borrower. These contracts allow the lender to claim the debtor’s real assets or collateral if the loan is not paid.

What rights do creditors have if a debtor fails to pay?

If a debtor fails to cover their debt, creditors can collect it in the form of collateral. If the debt is backed by collateral, (eg. mortgages or car loans), the creditor can try and repossess the collateral. Creditors can also take the debtor to court, resulting in wage garnishment or another repayment plan.

Are customer creditors or debtors?

Bank customers are debtors if they owe the bank money. Consumers or customers that purchase goods or services and pay during the transaction are not debtors. If customers of companies providing goods or services agree to make a payment during a later date, however, they are debtors.

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