how moratoriums work
a moratorium is often though not always a response to a short term crisis that disrupts the normal routine of a business for instance in the immediate aftermath of a natural disaster like an earthquake or flood an emergency moratorium on some financial activities may be granted by a government it will subsequently be lifted when normal business can resume if a company is experiencing financial difficulties it can place a moratorium on certain activities to lower costs the business may institute a hiring freeze limit discretionary spending or cut back on company travel and nonessential training moratoriums of this nature are designed solely to reduce unnecessary spending and are not meant to interrupt a business s ability or intent to repay its debts or to meet all necessary operational costs they are instead taken to alleviate a financial shortfall or avoid default on debt obligations the voluntary moratorium is a vehicle to bring spending back in line with current company revenues in bankruptcy law a moratorium is a legally binding hiatus in the right to collect debts from an individual this time out period protects the debtor while a recovery plan is agreed upon and put in place this type of moratorium is typical in chapter 13 bankruptcy filings in which the debtor seeks to restructure payments of outstanding debts both moratoriums and moratoria are acceptable plurals of the term moratorium examples of moratoriumsas an example in 2016 the governor of puerto rico issued an order to limit the withdrawal of funds from the government development bank this emergency moratorium established a hold on withdrawals that were not related to bank principal or interest payments in order to reduce risks to the bank s liquidity a liquidation plan for the bank was approved in 2017 1on the voluntary side insurance companies will sometimes issue moratoriums on writing new policies for properties located in specific areas during the course of a natural disaster such moratoriums can help mitigate losses when the probability of filed claims is abnormally high 2 for example in february 2024 the texas fair plan association issued a moratorium on writing new policies in many texas panhandle counties due to an outbreak of wildfires 3