Last Update: 3. September 2024

What is a Debtor?

A debtor is a person or a company that has a financial obligation to a creditor. This obligation can take the form of borrowed money, unpaid bills, or other outstanding debts. In the simplest terms, it means that the debtor owes something and must settle this debt within a certain timeframe.

In practice, a debt often arises when someone takes out a loan, purchases goods or services on credit, or fails to make agreed-upon payments. If the debtor does not meet their obligations, legal actions such as reminders or a court collection process may be initiated to recover the outstanding amounts.

Rights and responsibilities of a Debtor

A debtor has both rights and responsibilities, which are legally regulated. These are intended to ensure that the debtor is treated fairly while also fulfilling their obligations.

Rights of a Debtor

Right to Information: A debtor has the right to receive accurate and complete information about the amount of the debt, interest, and fees. This also includes a detailed breakdown of the claims.
Right to Privacy: The debtor's personal data cannot be shared with third parties without consent, except in the case of legitimate creditors or legal requirements.
Right to Fair Treatment: Debtors should not be intimidated or pressured through unfair practices such as harassment, threats, or fraud.

Responsibilities of a Debtor

Obligation to Pay: The primary responsibility of a debtor is to pay their debts on time and in full. This includes both the principal amount and any accrued interest and fees.
Duty to Cooperate: The debtor is required to cooperate in clarifying their financial situation. This may involve disclosing financial information to the creditor or collection agency.
Duty to Communicate: In case of payment difficulties, the debtor should promptly inform the creditor or collection agency to discuss solutions like installment payments or settlements.

Failure to comply with these responsibilities can lead to legal consequences, such as a court-ordered collection process or enforcement actions.

Types of Debtors

There are different types of debtors, which vary based on legal status and situation:

Private Individuals: These are natural persons who have debts due to personal loans, unpaid bills, rent arrears, or other liabilities. Private individuals are the most common debtors in the collection process.
Business Debtors (Companies): Companies or legal entities can also be debtors. This occurs when a business cannot pay its bills, supplier credits, loans, or other business liabilities. This includes both small businesses and large corporations.
Public Debtors: In rarer cases, state institutions or public bodies can also be debtors. This happens, for example, when government agencies fail to pay invoices or contracts on time.
Joint Debtors: These are individuals or companies that can be held jointly liable when a debt arises. This often occurs with guarantees or joint loans, where multiple debtors are responsible for the same debt.

Debtors in the Debt Collection Process

In the collection process, the debtor is at the center of the actions. The collection agency contacts the debtor on behalf of the creditor to recover the outstanding debt. The debtor has the opportunity to respond to reminders, make a payment, or agree to an installment plan. If the debtor does not meet their payment obligations, the collection agency may initiate further legal steps, such as a court collection process, to enforce the claim.

FAQs about Debtors

How can I settle my debts?

A debtor has several options to settle their debts:

Lump Sum Payment: The debts are fully paid off in one go if sufficient financial resources are available.
Installment Payments: Debts are paid off in smaller, monthly installments, which can provide financial relief.
Settlement: If the debtor and creditor agree on a reduced payment, this is accepted as full settlement.
Debt Counseling: Professional help to create a repayment plan and negotiate with creditors.
Personal Bankruptcy: A last resort in the case of high over-indebtedness. After 3 to 6 years, the debtor may be discharged from remaining debts.
Loans: The debtor can take out a new loan to pay off existing debts. However, this carries the risk of further indebtedness if repayment is not ensured.
Support from Family or Friends: Financial help from the personal network to quickly settle debts.

It's important to find a suitable solution early to avoid legal consequences.

What happens if I can't pay my debts?

If a debtor does not settle their debts, various legal and financial consequences may follow:

Pre-Litigation Collection Process: The creditor will initially send reminders to the debtor to remind them of the outstanding payment. Reminder fees may apply to the debtor.
Collection Process: If payment is still not made, the creditor may hire a collection agency. The agency attempts to recover the debts, which incurs additional costs for the debtor.
Court Collection Process: If the debtor does not respond to reminders, the creditor can apply for a court payment order. Ignoring this order may lead to an enforcement order.
Enforcement: If an enforcement order is issued, the creditor can initiate actions such as wage garnishment, bank account seizure, or the seizure of valuable assets.
Negative Credit Entries: Unpaid debts can lead to negative entries with credit bureaus, significantly affecting the debtor's creditworthiness.
Personal Bankruptcy: In cases of over-indebtedness and insolvency, personal bankruptcy may be the only option, although it has long-term effects.

To avoid such consequences, it's crucial to contact the creditor early and seek solutions such as installment payments or settlements.

How can a collection agency help a debtor?

Mediation and Communication: Collection agencies act as intermediaries between creditors and debtors. They contact debtors and inform them about the existing debts and possible solutions.
Offering Installment Plans: Collection agencies often offer debtors the option to pay their debts in installments rather than in a single lump sum. This provides financial relief and allows for manageable repayment.
Avoiding Legal Consequences: By cooperating with collection agencies, debtors can avoid legal consequences such as court proceedings or enforcement actions. Agencies provide solutions that allow debtors to gradually reduce their debts.
Advice and Support: Reputable collection agencies also offer advisory services to inform debtors about their rights and obligations and assist them in managing their financial situation. This can help avoid further indebtedness and find a sustainable solution.
Transparent Costs and Fees: Collection agencies inform debtors transparently about any costs and fees involved, ensuring there are no unexpected additional burdens. They adhere to legal requirements and protect the debtor's rights.