Person or entity has a compulsory agreement to pay a debt to another party. The party being paid the debt is known as a creditor. If the debt is in the form of a loan from a financial institution, the debtor is referred to as a borrower, and if it´s in the form of a security, the debtor is referred to as an issuer.

When the debtor has not met their legal obligations according to the debt contract, they are in default, which means they haven´t paid the debt on time. A default is not the same as insolvency or bankruptcy.

There are generally two types of default;

  1. Debt services default: it occurs when the borrower has not made a scheduled payment of interest or principal.
  2. Technical default: it occurs when an affirmative or a negative agreement is violated. To avoid the consequences of bankruptcy there’s a settlement called Individual Voluntary Arrangement.
This arrangement is supervised by an Insolvency Practitioner and it allows the debtor to reach a compromise with his creditors which should offer a larger repayment towards the creditor´s debt that could otherwise be expected if the debtor were to be bankrupt.