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The word 'debtor' refers to a person who owes money to a lending institution or private individual. People and companies that lend money are referred to as creditors. This can encompass banks, credit unions, credit card companies, department stores, and private funding sources such as hard money lenders, family or friends.

In the financial world, debtor can also be referred to as borrower or mortgagor. The latter is used in deed of trust contracts and mortgage notes. These descriptions are interchangeable, but also refer to the persons who borrowed funds and are responsible for repayment of outstanding debts.

The last few years have been challenging for consumers. Long-term unemployment has left many debtors unable to adhere to loan installments. The banking crisis left many mortgagors owing more on their home than their property is worth. Over 1 million borrowers lost their home to foreclosure in 2010 and millions more are expected to enter into foreclosure this year.

To prevent foreclosure, mortgagors often turn to personal bankruptcy. This debt relief strategy often leads to further problems which can take years for debtors to recover from. Many people are unaware of new bankruptcy laws that took effect in 2005. Known as the Bankruptcy Abuse Prevention and Consumer Protection Act, these laws forever changed the way debtors can obtain debt help.

It's important to understand that BAPCPA requires debtors to reorganize debts under Chapter 13 bankruptcy. This chapter lets borrowers retain valuable assets as long as they adhere to payment plans. Chapter 13 payments extend up to 5 years and require debtors to contribute a large percentage of disposable income toward repayment of debts.

An unfortunate truth about personal bankruptcy is a vast majority are unable to comply with payment plans. If payments are not remitted in a timely fashion, debtors will fail out of bankruptcy and have no other debt relief options to choose from.

Credit can get people into a lot of trouble; especially those who have not been educated about proper money management strategies. There are times when borrowing money is a necessity, but there is no need to aimlessly rack up credit card debt.

The recession has caused consumers to evaluate spending habits and cut back on unnecessary purchases. The only way to get out of debt and stay out of debt is to earn more than is spent. To reach the goal requires a solid financial plan.

The Internet is a great source for locating personal finance information and tools. It's best to stick with trusted sources and avoid spending money on products. Everything you need to effectively budget money can be found online at no cost.

Good sources include Suze Orman, Dave Ramsey,, and The latter provides budgeting worksheets and calculators, along with step-by-step guides for creating a household budget. Also, check with your bank or credit card companies to see if they offer interactive money management tools.

Our debtor education library offers a variety of articles including debt solutions, bankruptcy alternatives, and foreclosure prevention. We hope we provide the information you are seeking and can help transform you from a debtor to debt-free.

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Published on January 26, 2011 at 02:44 AM

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