Obligor
What Is an Obligor?
An obligor, otherwise called a debtor, is a person or entity who is legally or contractually obliged to give a benefit or payment to another. In a financial setting, the term "obligor" alludes to a bond issuer who contractually will undoubtedly make all principal repayments and interest payments on outstanding debt. The beneficiary of the benefit or payment is known as the obligee.
In the event that a covenant is penetrated by an obligor, the bond might become invalid and require immediate repayment, or it can in some cases be changed over completely to equity ownership.
Figuring out Obligors
An obligor is a person who is legally bound to another. Debt holders are the most common types of obligors. Notwithstanding, notwithstanding the required repayment of interest and principal, numerous holders of corporate debt are additionally contractually required to meet different requirements. For a bondholder, these are called covenants and are illustrated in the initial bond issue between the obligor and obligee.
Obligor in Corporate Settings
Covenants can be either affirmative or negative. An affirmative covenant is something that the obligor is required to do, for example, the need to hit specific performance benchmarks. A negative covenant is restrictive in that it stops the obligor from following through with something, such as restructuring the leadership of the organization.
Since these bond issues are contractual obligations, obligors may have next to no elbowroom in terms of conceding principal repayments, interest payments or avoiding covenants. Any postpone in payment or non-payment of interest could be deciphered as a default for the bond issuer, an event that can have huge repercussions and long-term consequences for the continuing reasonability of the business. Subsequently, most bond obligors view their debt obligations exceptionally in a serious way. Defaults by overleveraged obligors do happen every now and then.
Obligor in a Personal Setting
An obligor isn't required to be a bondholder or a holder of another form of debt. Somebody can turn into an obligor in their personal life, too. In family law, there are certain situations when a court order is given over — in a divorce settlement, for instance — that needs one of the parents to pay child help to the next parent. In the event that a working spouse is advised by the courts to pay the non-working spouse $500 every month, the regularly scheduled payment will make them an obligor. In circumstances like this, assuming there are changes to an obligor's financial status or income, they might petition the court to reduce their month to month obligation.
In any case, even if the obligor loses their job, the payments stay due and can't be released in bankruptcy like other civil decisions. In the event that an obligor falls behind on court-ordered payments, for example, child support, it can lead to issues, like wage garnishment, loss of driver's licenses, and different issues. It is important that an obligor parent pay what is owed, and really try to change child support sums when there is a change in income of one or the other parent.
Features
- An obligor is a person or entity who is legally or contractually obliged to give a benefit or payment to another.
- An affirmative covenant is something that the obligor is required to do, for example, the need to hit specific performance benchmarks.
- In family law, there are certain situations when a court order is given over — in a divorce settlement, for instance — that requires one of the parents, the obligor, to pay child support to the next parent.
