what is a default 
default is the failure to make required interest or principal repayments on a debt whether that debt is a loan or a security individuals businesses and even countries can default on their debt obligations default risk is an important consideration for creditors investopedia nono floresunderstanding a defaulta default can occur on secured debt such as a mortgage loan secured by a house or a business loan that s secured by a company s assets the loan could go into default if the borrower fails to make timely payments and the asset or collateral that was used to secure it would be in jeopardy a company that s unable to make required coupon payments on its bonds would also be in default defaults can occur on unsecured debt as well such as credit card balances a default reduces the borrower s credit score and can limit their ability to borrow in the future defaulting on secured debt vs unsecured debtits lenders or investors may sue to recover the funds when an individual business or country defaults on a debt their recovery prospects will depend in part on whether the debt is secured or unsecured the bank may ultimately foreclose on a home that secures a mortgage if the borrower defaults on the mortgage the lender can repossess the vehicle if a borrower defaults on an auto loan these are examples of secured loans the lender has a legal claim to a particular asset that s acquired with a secured loan corporations in default on secured debt may file for bankruptcy protection to avoid forfeiture providing time for negotiations on a settlement with creditors a default can also occur on unsecured debt such as medical bills and credit card balances unsecured debt isn t backed by an asset but the lender still has a legal claim in the event of a default credit card companies often wait a few months before sending an account into default the debt would be charged off after six or more months without payments being made on an outstanding balance the lender would write it off as a loss and close the account on a debt that s been charged off the creditor may then sell the charged off debt to a collection agency which would then attempt to collect from the borrower a collection agency that buys a charged off unsecured debt can have a lien or judgment placed against the borrower s assets a judgment lien is a court ruling that gives creditors the right to take possession of a debtor s property if the debtor fails to fulfill contractual obligations 3 types of defaultsthere are technically three different legal types of delays or defaults in contractual or legal obligations particularly in civil law systems these concepts are important in determining liability and remedies in contractual disputes in civic law cases these three determine which party is at fault to what degree and what consequences should follow general implications of defaultingvery broadly speaking there s a handful of things that could happen if you default on a loan the following list depends not only on the type of loan you re defaulting on but your credit history net worth liquid assets and legal standing with your loan contract we ll look at more specific outcomes of defaulting on specific types of debt later defaulting on a student loanstudent loans are another type of unsecured debt defaulting on a student loan has the same consequences as failing to pay off a credit card affecting your credit score your credit rating and your future loan prospects those who default on federal student loans may also face wage garnishment your loan is officially delinquent when your payment is 90 days overdue it s reported to all three major credit bureaus so your credit rating will fall new credit applications may be denied or approved only at a higher interest rate that can be charged to riskier borrowers a bad credit rating can follow you in other ways potential employers and potential landlords often check the credit scores of applicants especially employees who will need a security clearance to perform the job the loan will end up in default if your payment is at least 270 days late about one third of all federal student loan borrowers have been in default at some point borrowers who don t enter a loan rehabilitation agreement with default resolution group at the department s office of federal student aid can eventually be subject to withholdings of tax refunds and other federal payments as well as garnishments of up to 15 of their take home pay you can enter the federal student loan rehabilitation program or use loan consolidation if your federal student loans are in default a good first step is to contact your lender as soon as you realize that you may have trouble keeping up with your payments the lender may be able to work with you on a more attainable repayment plan or help you obtain deferment or forbearance on your loan payments student loan payments and the accumulation of interest on outstanding loans were suspended by the department of education doe as a covid 19 relief measure the doe then extended the pause on federal student loan payments in november 2022 in response to a federal court order blocking the white house s student loan forgiveness plan student loan payments were scheduled to resume 60 days after the department was permitted to implement the program or the litigation was resolved student loan interest charges then resumed on sept 1 2023 and payments restarted in october 2023 sovereign defaultsovereign default occurs when a country doesn t repay its debts a country that s in default usually cannot be compelled to satisfy its obligations by a court unlike an individual or corporate debtor but it does face a variety of other risks and problems the economy might go into recession or the currency might devalue the defaulting country may be shut out of debt markets for years to come sovereign default can occur for a variety of reasons including political unrest economic mismanagement or a banking crisis greece defaulted on a 1 73 billion payment to the international monetary fund imf in 2015 before securing additional debt relief from the european union fitch a leading provider of credit ratings downgraded the u s credit rating from aaa to aa on aug 1 2023 it indicated that it foresees fiscal deterioration over the next three years and cited the federal government s tendency for last minute negotiations over the country s debt ceiling the u s budget committee has indicated that this is only the second time in the nation s history that a credit rating provider has taken this action defaulting on a futures contractdefaulting on a futures contract occurs when one party doesn t fulfill the obligations set forth by the agreement default usually involves a failure to settle the contract by the required date in this case a futures contract is a legal agreement for a future transaction involving a particular commodity or asset one party to the contract agrees to buy at a specific date and price and the other party agrees to sell at the contract specified milestones they could face collections actions and lawsuits if one party defaults a default will stay on your credit reports and be factored into your credit score for seven years according to the credit bureau experian 