A debtor is someone who owes money to another entity. A debtor may be an individual, business, government, or any similar entity.

The person, company, or government the money is owed to is called a creditor. If the creditor happens to be a bank, the debtor is often referred to as a borrower.

Oftentimes, big companies have to be debtors, even though they have enough assets to purchase securities and make other investments. This happens as a result of a strategy known as leveraging. Under leveraging, an entity borrows to maximize profit by gaining capital in a less expensive way by borrowing the amount needed for certain purchases in the meantime.

When a would-be debtor borrows money, he does so with the understanding that the loan is to be governed by a set of regulations, depending on the legal conditions posted, as well as any additional regulations set by the creditor.

One of these conditions may have to do with the period of time in which the debt is to be paid. If the debtor is unable to follow the conditions set and does not make the payments as scheduled, he is considered to be in default. This may happen whether or not the debtor is willing to make the necessary payments.

In cases where the debtor does not have the resources to make payments, he is considered insolvent. Insolvency is the condition in which a debtor has more liabilities than assets and is therefore unable to meet his debt obligations.

Should the case reach a court, and should the court declare the debtor insolvent, the debtor is then legally known to be bankrupt.

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