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In economics a debtor is simply an entity that owes a debt to someone else, the entity could be an individual, a firm, a government, or an organization. The counterparty of this arrangement is called a creditor. When the counterparty of this debt arrangement is a bank, the debtor is more often referred to as a borrower.
Default
Default occurs when the debtor has not met its legal obligations according to the debt contract, e.g.- it has not made a scheduled payment, or has violated a loan covenant (condition) of the debt contract. Default may occur if the debtor is either unwilling or unable to pay their debt. This can occur with all debt obligations including bonds, mortgages, loans, and promissory notes.
If the money owed becomes beyond the possibility of repayment, the debtor faces insolvency or bankruptcy; in the United Kingdom and some states of the United States until the mid-19th century, debtors could be imprisoned in debtor's prisons.
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- This page was last modified on 14 November 2008, at 17:53.
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