What Is a Creditor and How Can They Affect Your Finances?

What is a creditor? This term describes any person or organization that lends you money, regardless of the purpose. A creditor could be your mortgage, student loan or credit card company. It could also be a friend or family member who loans you funds. Creditor is another word for lender, while the borrower is sometimes called the debtor. Loan applications often ask you to make a list of your creditors so the bank can see if you can afford to take on more debt.

What Are the Different Types of Creditors?

The term "real creditor" refers to a bank or financial institution that lends you money. A personal creditor, on the other hand, is someone you know. Either of these types of creditors can become a "judgment creditor" if they sue the borrower to recoup the balance of the loan. 

What Happens if You Don't Repay a Creditor?

Your creditor may have the legal right to take you to court to get their money back if you don't repay the loan as agreed. For a secured loan, such as for a home or vehicle, the creditor can seize the property under the terms of the debt agreement.

Creditors must abide by the appropriate processes and meet deadlines to take legal action for debt repayment. They can also hire a third-party debt collecting firm. 

If someone still has debt when they die, the creditor can file a legal claim for payment from the estate. Depending on the state, they must do this within a specific period of time after the person's death. The executor of the estate, named in the deceased person's will, is responsible for paying estate debts before distributing assets to the person's heirs.

If a creditor sues for repayment of an unsecured loan, the court can grant permission for them to:

• Levy, or take, money from existing bank accounts
• Place a lien on your home or vehicle 
• Garnish your salary

The court can also order you to sell assets to repay the debt. 

Do You Have to Repay Creditors if You File for Bankruptcy?

If you file for bankruptcy, the court gives you an automatic stay. This legal action prevents creditors from contacting you to collect the debt. However, bankruptcy only discharges, or removes, certain types of debt. It doesn't apply to tax debt, spousal support, child support or most types of student loan debt. During the bankruptcy process, creditors have a certain period of time during which they can ask the court to require repayment. The bankruptcy court judge makes this determination.