Creditors encounter debts that go by many different names. This blog will address several different ways in which debt is triggered, and how debt is classified in these instances.
Covenant default
A loan covenant specifies the conditions and requirements the borrower must fulfill, as well as what is forbidden, in a loan agreement. If the loan is for a business, agreements may include financial, ownership, and informational covenants, for example. Covenant default is also known as technical default. Should a borrower/debtor violate a loan covenant, penalties can be brought to bear or the loan itself can be called with a demand for immediate payment in full.
Debt service default (Payment default)
These terms are interchangeable, and refer to when a borrower/debtor has missed or not made a scheduled payment, whether on loan principal or interest.
Maturity default
A loan’s maturity date is the time when a note becomes due and payable, or when the amortization schedule of a loan indicates the last payment should be made. Maturity default occurs when a mortgage borrower/debtor fails to pay to the lender/creditor the balance due at maturity. In the recent financial and mortgage crisis, maturity defaults were more common than perhaps any other time in history. In the instance of a maturity default, a lender/creditor may agree to refinance or restructure the loan in order to recoup losses rather than see the loan go into default.
Strategic default
Whether triggered by an economic crisis or by personal reasons, this term refers to a debtor who intentionally defaults on a loan, even if s/he is capable of making payments.
Event Of Default
Business contracts, loans, and lease agreements often contain clauses pertaining to an “event of default” situation. These articles protect the parties involved should the debtor cease payment. An event of default may be triggered by:
- Maturity default on a loan
- Breach of contract
- Declaration of bankruptcy
- Transferring collateral without creditor consent
Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing. If you would like more information about defaults pertaining to bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.
The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters. We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.