Mortgage Dictionary -> Debtor
What is Debtor?
Depending on the amount of the debt owed, a debtor can be insolvent, or unable to pay the debt that is due by a specific date. A debtor can even be legally declared bankrupt by court order when it has been proven that the debtor is either unable or incapable of paying the debt owed.
What are some outstanding debts?
When it reaches that point, persons or institutions owed have taken extreme measures to recoup their losses. In some cases some loan agencies have even held a person's home or car as collateral to be seized and held from those who have defaulted or went back on their word of honor on their loans. With others, some have resorted to using collection agencies or legal judgments against the debtor, threatening to garnish their income to make them pay what they owe.
As hard as it may seem today, in the 19th century in this country there was what was known as "Debtor's Prisons", in which debtors were actually put in jail for not paying their debts. In the 1830's, however, these prisons were largely discontinued and reduced to the federal level. This does not necessarily mean that a debtor cannot be incarcerated for certain debts, depending upon the seriousness and the gravity of what is owed.
For example, if a person actually has the money and means to pay off a debt and willfully refuses to do so, the court can imprison a debtor. In most states though, if you cannot pay, imprisonment is usually not the penalty. You can claim bankruptcy or poverty or an equitable arrangement can be made so that the debtor can gradually pay off the debt in a reasonable period of time.
In some states, in the case of a child support situation, a debtor can be imprisoned regardless of whether they do not have the funds, either because of willful nonsupport or through no fault of their own.
It must also be kept in mind that the debtor has rights. They can appeal to a debt consolidation agency to help them consolidate their loans or they can assert their consumer rights in which they can declare themselves insolvent. Loans agencies realize there is only so much they can do legally and they cannot do, one of which they cannot legally and indiscriminately garnish a person's income at leisure. they must abide by the financial laws of the land. For instance, they must get a court order, which can take months if the judgment is approved by the court, and if approved they can only garnish 10 to 20% of a person's salary, if employed.
If unemployed, they cannot garnish a debtor's unemployment benefits or any other federal benefits, because legally that is considered "protected income".
Hopefully, you or any of your loved ones may not find yourselves in this precarious situation. Try to always pay what you owe, and never borrow more than you can afford to pay back.