Debt Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Debt, written in plain English, along with examples of how it is used.

What is Debt?

anything owed is a debt. This could be bonds, mortagages, promissory notes, etc. Debt could be money outstanding or services/duties which are due.

History and Meaning of Debt

Debt is a concept that has existed for thousands of years, as people have been borrowing and lending money or goods since the beginning of civilization. In the modern era, debt typically refers to a financial obligation that one party owes to another. This could be in the form of a loan, credit card debt, or mortgage payments.

In some cases, debt can be a useful tool for individuals and businesses to finance investments or make purchases that they couldn't afford otherwise. However, too much debt can be dangerous, especially if the borrower is unable to make their payments. In extreme cases, this can lead to bankruptcy or other financial ruin.

Examples of Debt

  1. John takes out a loan from the bank to buy a car. He agrees to make monthly payments to pay off the loan plus interest. This is an example of debt.

  2. Mary has $5,000 in credit card debt. She has been carrying a balance on her card for several months and is struggling to keep up with the payments.

  3. Joe owes his landlord $1,000 in rent. The landlord has given him a deadline to pay the debt or face eviction.

  4. Jane has a mortgage on her house. She owes $200,000 to the bank and makes monthly payments to pay off the loan over a period of 30 years.

Legal Terms Similar to Debt

  1. Credit: Like debt, credit refers to an arrangement in which one party lends money or goods to another with the expectation of being repaid.

  2. Default: If a borrower fails to make their payments on time, they are in default. This can have serious legal and financial consequences.

  3. Collateral: Often, a lender will require the borrower to provide collateral - such as a car or house - to secure the loan. If the borrower defaults, the lender can take possession of the collateral to recoup their losses.

  4. Bankruptcy: If an individual or business is unable to pay off their debts, they may file for bankruptcy. This can discharge some or all of their debts, but it also has serious long-term consequences for their credit and financial future.

  5. Interest: When borrowing money, the lender typically charges interest in order to make a profit. This is a percentage of the amount borrowed that the borrower must pay in addition to the principal amount.