What is a debtor?

Debt is a part of everyday life. If you’ve applied for a credit card, taken out a car loan or paid off some other form of debt, then you know what it means to be a debtor.

Use this guide to learn more about what a debtor is and how it differs from a creditor. Plus, understand what happens—and what protections are in place—if a debtor stops making payments on money owed.

Key takeaways

  • A debtor is a person or organization who owes money to a creditor.
  • A creditor is a financial institution or person who loans money to a debtor.
  • Debt can take many forms, including mortgages, auto loans, credit cards or student loans.
  • Creditors often report a debtor’s activity to the credit bureaus, which can impact credit reports and, in turn, credit scores.
  • Debtors are protected by a number of laws like the Fair Debt Collection Practices Act, Equal Credit Opportunity Act and Truth in Lending Act.

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Debtor definition

A debtor, also referred to as a borrower, is a person or organization who owes money to another party. Debtors are obligated to pay back the loan or credit—often with interest and fees—based on the terms of the loan agreement.

Keep in mind that someone who’s filed for bankruptcy may also be considered a debtor.

Debtor examples

Debtor vs. creditor

While the debtor is the one who owes money on a debt, the creditor is the person or organization loaning the money. There are different types of creditors, depending on the loan type:

  • Unsecured creditors: These are creditors that lend money not backed by collateral, like a credit card company.
  • Secured creditor: This type of creditor—like a bank, mortgage company or auto lender—lends money that’s backed by collateral.
  • Personal creditor: This may be a friend, family member or business that lends money with the expectation of being paid back in the future.

Learn more about the difference between debtors and creditors.

What happens if a debtor stops making payments?

If a debtor stops making payments, the creditor’s response may depend on the type of debt and terms of the loan.

If the loan is secured, or backed by collateral, the creditor can try to repossess the asset. For example, most mortgages come with a voluntary lien on the home. This gives the lender legal right to claim the home if the borrower stops making payments.

A creditor may also try to garnish wages from the debtor or get a repayment order in court.

Are there laws to protect debtors?

The Fair Debt Collection Practices Act (FDCPA) is one of the main federal protections for debtors. According to the Consumer Financial Protection Bureau (CFPB), “The FDCPA prohibits debt collection companies from using abusive, unfair, or deceptive practices to collect debts from you.”

 Other laws that protect debtors include:

How does borrowing affect a debtor’s credit?

Creditors typically report a debtor’s credit activity to one or all of the three main credit bureaus. And credit-scoring companies like FICO® and VantageScore® use this data to calculate your credit scores. Here are a few factors that can affect your credit scores:

  • Payment history
  • Amount of unpaid debt
  • Types of debt
  • Age of credit history
  • New credit applications

Each factor can impact your credit scores differently, depending on the credit-scoring company. That’s why you might have several different credit scores.

Debtors in a nutshell

Taking on debt can be a way to achieve a financial goal. For instance, you might become a debtor to finance a home or get a college education. But as with any loan, it’s important to use debt responsibly by doing things like paying in full and on time. 

Looking to take out a loan or apply for credit? Learn more about good debt versus bad debt to help inform your decision.

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