Default

Default is a situation where a company or individual fails to pay interest and principal on time. Default occurs when a debtor is unable to meet the legal obligation according to debt contract(e.g.  did not make a scheduled payment, or violated a loan convenant of the debt contract). Borrowers may default when they are unable to make the required payment or are unwilling to honor the debt.

If a company defaults on loans, its creditors can be compensated by its assets/collateral.