defaulted

Defaulted is the state of failing to fulfill a borrower’s legal obligations under a debt contract. It commonly refers to failing to make scheduled payments, but can also occur through breaching other terms of the agreement. A distinction is often made between technical default (breach of covenants or reporting requirements) and payment default (missed or late principal or interest).

Default can involve individuals, corporations, or governments. For individuals, typical examples include mortgage, student loan, or credit card debt. For corporations and governments, it commonly involves bonds, bank loans, or other debt instruments. When a default is declared, creditors may accelerate the debt, demand immediate repayment, seize collateral (if secured), or initiate legal actions. Credit rating agencies usually downgrade the debtor’s creditworthiness, increasing future borrowing costs and limiting access to capital.

Remedies and outcomes vary. In private finance, borrowers may seek forbearance, debt restructuring, or refinancing to avoid bankruptcy. If unresolved, the debtor may enter formal insolvency proceedings, leading to liquidation or reorganization. In sovereign debt, default often prompts debt restructuring negotiations, possible haircuts or new debt issuance, and sometimes participation in international relief programs.

In accounting and finance, defaulted loans are typically classified as nonperforming assets or impaired, reflecting the increased risk of noncollection. The term “defaulted” therefore signals serious credit distress and a potential shift in legal, financial, and operational handling of the obligation.