What Is a Liability?

A liability is a financial obligation or debt that an individual or business must pay to another party.

Liability Overview

Liabilities represent claims on your assets by creditors and include anything from credit card balances to mortgages and business loans. For individuals, they are subtracted from assets to determine net worth. For businesses, liabilities are part of the balance sheet and reflect both short-term (like bills) and long-term (like bonds) financial commitments. Managing liabilities is critical to maintaining financial stability and avoiding insolvency.

Key Points

• A liability is something you owe—like debt or an obligation.
• Includes loans, bills, and other payables.
• Used to calculate net worth and financial health.