# Obligor Explained: Definition, Responsibilities, and Examples

## What Is an Obligor?

An obligor, also known as a debtor, is a person or entity who is legally or contractually obliged to provide a benefit or payment to another party. In a financial context, an obligor is often a bond issuer responsible for making all principal and interest payments on outstanding debt. Obligors also appear in personal contexts, such as in child support cases, where they are legally bound to meet payment obligations. Failing to meet these obligations can lead to defaults or legal enforcement.

### Key Takeaways

*   An obligor is legally or contractually required to provide payment or a benefit to the obligee.
*   Obligor is common in finance, often seen as bond issuers responsible for interest and principal repayments.
*   Corporate obligors must adhere to covenants, which can dictate specific actions or restrictions.
*   In family law, an obligor might pay child support, a court-mandated obligation that cannot be discharged in bankruptcy.
*   Breaching a bond covenant can result in immediate repayment demands or conversion to equity ownership.

## The Role and Responsibilities of an Obligor

An obligor is a person who is legally bound to pay another person. Debt holders are the most common types of obligors.

However, in addition to the required repayment of interest and principal, many holders of corporate debt are also contractually required to meet other requirements. For a bondholder, these are called covenants and are outlined in the initial bond issue between the obligor and obligee.

### Obligors in Corporate Finance: Key Considerations

[Covenants](https://www.investopedia.com/terms/c/covenant.asp) can be either affirmative or negative. An affirmative covenant is something that the obligor is required to do, such as the need to hit specific performance benchmarks. A negative covenant is restrictive in that it stops the obligor from doing something, such as restructuring the leadership of the organization.

Since these bond issues are contractual [obligations](https://www.investopedia.com/terms/o/obligation.asp), obligors may have very little leeway in terms of deferring principal repayments, interest payments or circumventing covenants.

Any delay in payment or non-payment of interest could be interpreted as a [default](https://www.investopedia.com/terms/d/default2.asp) for the bond issuer, an event that can have massive repercussions and long-term ramifications for the continuing viability of the business. Therefore, most bond obligors take debt obligations seriously, though defaults by overleveraged obligors occur occasionally.

> **Important**
>
> With bonds, if a covenant is breached by an obligor, the bond may become invalid and require immediate repayment, or it can sometimes be converted to equity ownership.

Since these bond issues are contractual [obligations](https://www.investopedia.com/terms/o/obligation.asp), obligors may have very little leeway in terms of deferring principal repayments, interest payments or circumventing covenants.

Any delay in payment or non-payment of interest could be interpreted as a [default](https://www.investopedia.com/terms/d/default2.asp) for the bond issuer, an event that can have massive repercussions and long-term ramifications for the continuing viability of the business. As a result, most bond obligors take their debt obligations very seriously. Defaults by overleveraged obligors do occur from time to time.

### Obligors in Personal Financial Obligations: A Closer Look

An obligor does not have to be a bondholder. In family law, there are certain cases when a court order is handed down—in a divorce settlement, for example—that requires one of the parents to pay child support to the other parent.

If courts order a working spouse to pay $500 monthly to a non-working spouse, they become an obligor. They can request a payment reduction if their financial status changes.

Otherwise, even if the obligor loses their job, the payments remain due and cannot be discharged in bankruptcy like other civil judgments.

If an obligor falls behind on court-ordered payments, such as child support, it can lead to problems, such as wage garnishment, loss of driver's licenses, and other problems. It is important that an obligor parent pay what is owed, and make an effort to change child support amounts when there is a change in income of either parent.

## Is the Borrower the Obligor?

In cases of debt, the borrower or the one with the debt is the obligor. They have an obligation to pay the lender or bond issuer, or the obligee. In other cases, an obligor may not have a debt to an obligee, but they may be responsible for paying them, such as in cases of child support.

## Who Is the Obligor in a Surety Bond?

With [surety bonds](https://www.investopedia.com/terms/s/surety.asp), or promises to fulfill debts in default, there are three parties involved. The principal is the obligor. The surety is the party that agrees to pay the bond to the obligee if the obligor defaults. The obligee is typically a government agency.

## What Happens When the Obligor of Child Support Dies?

When an obligor of child support dies, they may still be responsible for paying child support through their estate, depending on the laws of the state where they lived.

## The Bottom Line

An obligor is legally or contractually bound to provide payment or a benefit to the obligee, the recipient. Obligors include corporations issuing debt, individuals paying child support, or principals in surety bonds, often subject to covenants that set requirements or restrictions.

Defaulting can lead to serious consequences, from corporate financial penalties to wage garnishments in personal cases. In family law, obligors may seek court-approved modifications but remain responsible for meeting their obligations.  

> **Article Sources**
>
> 1.  American Family Law Center. "[Obligor](https://americafamilylawcenter.org/obligor/)."
>     
> 2.  Nelson Law Group, PC. "[Obligor vs. Obligee—Which One Are You?](https://nelsonlawgrouppc.com/obligor-vs-obligee-one/)"
>     
> 3.  National Association of Surety Bond Producers. "[What Are Surety Bonds](https://www.nasbp.org/getabond/about-surety)?"
>     
> 4.  U.S. Department of the Treasury. "[FAQ for New Individual Securities Law](https://www.fiscal.treasury.gov/files/tcmm/FAQforNewIndividualSuretiesLaw.pdf)."
>     
> 5.  Legal Information Institute, Cornell University. "[Child Support](https://www.law.cornell.edu/wex/child_support)."