A debtor is someone who owes a debt or obligation to someone else. Most commonly, this is the obligation to pay money. A classic example is within the situation where a bank extends a loan to an individual or business entity, creating the obligation for the individual or business entity, as the debtor, to pay back the loan plus interest. The entity lending the money or item is known as the creditor.
- In bankruptcy law, the debtor is the person who files a voluntary bankruptcy petition, or the person against whom an involuntary bankruptcy petition gets filed.
- In a secured transaction, the debtor is the borrower or buyer who puts up property as collateral for a loan or purchase which gives the creditor a security interest in the property. This means they have a right to take the property if the debtor does not pay off their obligations. In a secured transaction, the credit extended to the debtor is not necessarily a monetary loan. It could be the purchase item itself sold on credit.
- For example, a person wants to purchase a computer. The computer costs $1,000.00. The purchaser does not have all the money right now, so the computer store sells the computer on credit and the person buying the computer has to pay off the purchase price over a specified length of time, but they are able to take possession of the computer right away. Here the purchaser is the debtor who owes an obligation to the computer store to pay off the price of the computer.
- See UCC § 9-102(a)(28).
[Last updated in September of 2022 by the Wex Definitions Team]