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  1. Bankruptcy Glossary
  2. Default

What is Default?

Financial agreements can include many types of various contracts such as home mortgages, personal loan contracts and car loans. If a debtor defaults on a secured loan it may entitle the lender or bondholder to repossess the property or asset and attempt to recapture the loan principle amount and the interest payments.

Defaulting can be extremely detrimental to a debtor and can lead to the following:

  • Late Fees.
  • Additional fees charged by the lender at a specified date if the full payment for the debt has not been made.
  • Damaged Credit.
  • Lenders may choose to report the debtor's late payments to the credit bureaus which will lead to a lower credit score. Poor credit ratings can make it difficult to acquire loans in the future or if a borrower is able to get a loan a low credit score can increase the rate of interest charged for borrowing money.
  • Foreclosure or repossession.
  • Failure to make loan payments will eventually allow the lender to repossess the property.

Contractual obligations will determine the amount of missed payments allowed by the lender. Repossession and property foreclosure will devastate the borrower's credit score. If a home is repossessed and sold and the money recovered by the lender does not cover the total cost of the home the borrower may be responsible for paying the remaining balance.