We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a Financial Obligation?

Mary McMahon
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A financial obligation is a requirement to pay money to another party, such as a lender, landlord, or service provider. Obligations may be fixed or variable, and are an important part of budgeting. Many come with legal ramifications. If a debtor fails to pay, the creditor can take action in a court of law to recover damages, including the amount owed along with additional fees to compensate. Under certain circumstances, debts may be forgiven, usually as part of a bankruptcy proceeding.

Some examples of a financial obligation can include debt service, utility bills, and agreements to pay for products or services. Debts can make up a substantial component of expenses, particularly for people or organizations with large loans. Companies may take on additional legal obligations of this nature in the form of bonds, a type of debt instrument used to finance business activities. The company needs to pay out interest on the bond in addition to preparing to repay the principal when it matures.

People take on a financial obligation when they sign contracts for services provided in exchange for financial consideration. This can include agreements to receive health care, obtain repairs from a mechanic, or order products for delivery. The contract creates a legal relationship that can be used in the event the debtor doesn’t pay or attempts to contest charges. Physicians, for example, can pursue payment for services even if patients didn’t get better, because the financial obligation isn’t contingent on whether the treatment works.

When a financial obligation enters a court of law in a suit, a judge can review the facts of the case and make a determination. The debtor may be compelled to pay and asked to set up a payment plan if it’s not possible to discharge the debt in full. If the contract doesn’t appear to be legal, the creditor didn’t provide the advertised service, or there are other problems, the judge may rule that the debtor is in the right and does not have to pay. Judgments can include the seizure of assets to cover the obligation in some cases.

Budgeting must account for each financial obligation to create an accurate picture of financial circumstances. Money must be set aside to handle ongoing and projected expenses. Some may be tax-deductible, which provides an opportunity to claim them for a reduction in tax liability. Failure to prepare to pay bills can result in delayed payment or non-payment, which could expose people to the risk of being sent to collections.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.