What is default? Default - inability to perform or violation of the borrower's payment obligations to the lender, including the inability to pay interest, the bulk of the debt and other conditions of the loan agreement. This phenomenon affects both individual enterprises and entire states. In general terms, a default is a refusal to pay any debts.
There are two types of default - simple and technical. The first kind is simple (also called bankruptcy). A simple default is directly related to the officially recognized inability of the debtor to fulfill obligations to creditors due to lack of money. In such a case, a team of temporary “crisis” managers are appointed for the companies, who plan further steps, for example, the procedure for selling assets. In the case of a simple default declared by a separate country, the problem is solved at the global level with the participation of other states and international organizations, for example, the World Monetary Fund. A simple default can be sovereign or cross. In the case of a sovereign default, a country cannot fulfill its obligations for both external and internal debts. The essence of the cross default is that a default on one transaction applies to other debt obligations. The second type - technical default (also called temporary). It is characterized by the situation with the occurrence of technical errors, for example, the company submitted not the whole set of documents, a failure occurred in the payment system, the borrower refused to pay interest. Any breach of clauses or technical oversight in the physical ability to fulfill obligations to creditors is a technical default. Usually its consequences are quite quickly leveled. In the case of a long period of non-payment, the creditor can refer to the existing legislation, find out the reasons for default and claim fulfillment of obligations.
The consequences of a technical default for an individual company are reflected in a decrease in trust and a partial loss of the company's reputation, a tighter framework and preventive measures in subsequent contracts. A simple default condemns the company to the disappearance or extremely strong reorganization. In the US, every third bankrupt enterprise survives. Often, companies use simple default as the only legal way out of a critical situation.
There is an inevitable collapse of the national currency in relation to others - devaluation. The default is accompanied by hyperinflation - the catastrophic depreciation of money. Further, the financial market is falling due to fluctuations in the course and the fall in the value of shares of large companies.