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LEGAL DICTIONARY

Obligor

What Is an Obligor?

An obligor is an individual who owes a payment or benefit to another person or entity. This legal obligation can be a personal or business arrangement.

People who owe a debt are the most typical obligors. Another word for an obligor is "debtor." The individual receiving the debt is called the obligee. For example, if you take out a loan to buy a car, you are the obligor, and the lending institution is the obligee.

Obligors in Private and Business Contexts

Examples of individuals who are obligors in private settings are those who owe a former spouse alimony. Child support and loan payments are other standard legal contracts that include an obligor.

In both cases, the obligor is legally required to make payments as set forth in the divorce decree or the loan agreement. The obligee can take legal action against the obligor if the debt is not paid on schedule.

Obligors also play a role in corporate settings. For example, an obligor can be an entity that is obligated by a legal contract to meet specific work requirements or other performance deadlines called covenants.

These business covenants can define both positive and negative actions. An affirmative covenant specifies something the obligor is required to perform, such as specific performance benchmarks.

A negative covenant restricts the obligor from doing something, such as restructuring the company's leadership or selling a particular product. For example, a distributor (the obligee) may sign a contract with a seller (the obligor) that prohibits them from marketing a rival company's products.

Construction contracts often involve the obligor and obligee relationship. For example, in a bid bond, the construction contractor makes a commitment to a project manager to complete work by a specific time and for an agreed-upon cost. In this scenario, the contractor is the obligor, and the project manager is the obligee.

What Happens if Obligors Don't Meet Obligations

A divorce agreement or settlement may require that a working parent pay child support to the non-working spouse. In this case, the parent paying the support is the obligor, and the parent receiving the payment is the obligee.

The settlement amount is based on the financial status of both parties at the time of the divorce. If that obligor's financial situation changes – such as a loss of income – the obligee may petition the court to lower their monthly payment. Otherwise, the full amount continues to be due at the appropriate time, according to the terms of the divorce decree.

In a business setting, an obligor who falls behind on positive actions, takes prohibited negative actions, or misses payments can also face serious legal consequences. For example, the obligee can file a debt collection lawsuit or refuse to pay for contracted work that has failed to meet the mark.

Create Your Free Demand Letter

Helpful Resources:

The Balance - What Is an Obligor?

MoneyTips - Obligor vs. Obligee: What's the Difference?

Cornell Law - Obligor

Insuranceopedia - What is an Obligor?

What Is an Obligor?

An obligor is an individual who owes a payment or benefit to another person or entity. This legal obligation can be a personal or business arrangement.

People who owe a debt are the most typical obligors. Another word for an obligor is "debtor." The individual receiving the debt is called the obligee. For example, if you take out a loan to buy a car, you are the obligor, and the lending institution is the obligee.

Obligors in Private and Business Contexts

Examples of individuals who are obligors in private settings are those who owe a former spouse alimony. Child support and loan payments are other standard legal contracts that include an obligor.

In both cases, the obligor is legally required to make payments as set forth in the divorce decree or the loan agreement. The obligee can take legal action against the obligor if the debt is not paid on schedule.

Obligors also play a role in corporate settings. For example, an obligor can be an entity that is obligated by a legal contract to meet specific work requirements or other performance deadlines called covenants.

These business covenants can define both positive and negative actions. An affirmative covenant specifies something the obligor is required to perform, such as specific performance benchmarks.

A negative covenant restricts the obligor from doing something, such as restructuring the company's leadership or selling a particular product. For example, a distributor (the obligee) may sign a contract with a seller (the obligor) that prohibits them from marketing a rival company's products.

Construction contracts often involve the obligor and obligee relationship. For example, in a bid bond, the construction contractor makes a commitment to a project manager to complete work by a specific time and for an agreed-upon cost. In this scenario, the contractor is the obligor, and the project manager is the obligee.

What Happens if Obligors Don't Meet Obligations

A divorce agreement or settlement may require that a working parent pay child support to the non-working spouse. In this case, the parent paying the support is the obligor, and the parent receiving the payment is the obligee.

The settlement amount is based on the financial status of both parties at the time of the divorce. If that obligor's financial situation changes – such as a loss of income – the obligee may petition the court to lower their monthly payment. Otherwise, the full amount continues to be due at the appropriate time, according to the terms of the divorce decree.

In a business setting, an obligor who falls behind on positive actions, takes prohibited negative actions, or misses payments can also face serious legal consequences. For example, the obligee can file a debt collection lawsuit or refuse to pay for contracted work that has failed to meet the mark.

Create Your Free Demand Letter

Helpful Resources:

The Balance - What Is an Obligor?

MoneyTips - Obligor vs. Obligee: What's the Difference?

Cornell Law - Obligor

Insuranceopedia - What is an Obligor?