Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Debtor

What it is:

A debtor is a person or entity legally required to provide a payment, service or other benefit to another person or entity (the obligee). Debtors are often also called borrowers or obligors in contracts.

How it works (Example):

Companies that issue bonds are perhaps the most well-known debtors. They must provide their bondholders with set interest and principal payments on specified dates and in some cases must be willing to convert that debt into equity at specified ratios or repay the debt early if certain events occur.

However, a debtor also might be required to perform particular tasks or even refrain from performing certain actions. When a debtor fails to meet its obligations, the debtor is sometimes considered in default.

Why it Matters:

Debtors are subject to contractual obligations. As such, if they do not fulfill their obligations, the creditors usually have the right to seek recourse in court. A significant amount of reputational damage can also occur when an entity, especially a public company, fails to meet its obligations. In some cases, even the speculation that a debtor might not fulfill its obligations can cause its stock price to go down and make it very difficult to obtain financing or other help later.

Related Terms View All
  • Legal Fees
    dfgdf
  • Belly Up
    Let’s assume Company XYZ’s stock falls from $10 per share to 50 cents per share due to a...
  • In Play
    Let's say Company XYZ has a ton of cash on its balance sheet, and activist investors have...
  • Wallpaper
    Once a security becomes worthless, its hard documentation (for example, its stock...
  • Good This Month
    For example, let's assume an investor wants to sell 100 shares of Company XYZ at $25 per...