You took a loan to get your tofu sandwich stand going. Tofun. The loan agreement stipulated that if you go 90 days late on your loan payments, you default on the deal.
You've hit some tough times. You haven't paid your loan for a few months. Finally, you beg your rich sister-in-law to help you out. She agrees, allowing you to send all the back payments to your lender. And rename the place Nofun. They get the check on the 91st day.
You technically defaulted when you went over the 90-day market, but you quickly got back in line. Temporary default. Like those people who are clinically dead for three minutes on the operating table, but get revived using those zappy paddles. They are temporarily dead, but come back.
The term also comes up in bond trading. If the issuer of a bond misses a couple interest payments, but quickly gets back on course, they are said to suffer a temporary default. It doesn't necessarily mean a full disaster. Still, the bond's credit rating will likely get downgraded.
The extent of the damage depends on the situation. There was a lot of controversy in 2011 when it looked like the U.S. might go into temporary default on its debt payments as a result of some maneuvering between the political parties. However, rating agency Fitch announced that even a temporary default would have a long-term detrimental impact on the U.S. credit rating.
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Finance: What is Bankruptcy?260 Views
Finance a la' Shmoop what is bankruptcy well in the old days
this was bankruptcy you'd go to prison if you couldn't pay your bills and [People in prison for bankruptcy]
unfortunately there weren't and still aren't a lot of legal high wage earning
opportunities in prison working your way out of debt on the chain gang wasn't [Prisoners working outside]
really a thing back then so instead the burden would be on your family to pay
back the loan you'd promised to pay back and didn't ugly situation it paved the [Officer knocking on a prisoners family member to pay their debts]
way for some well today bankruptcy has a range of flavors that it comes in but
basically it exists as a legal vehicle to avoid the aforementioned situation a [Bankruptcy van driving]
bankrupt person and/or corporation stands in front of a judge they turn
their pockets inside out with a sad face and the judge then decide who will be [Person opens their pockets inside out in front of a judge]
paid when and how much well how does she decide the order for who gets paid back
when? well, it usually prioritizes employees and vendors owed a paycheck
above banks who have made a loan and under that umbrella all different types
of loans have different priorities if the bankrupt individual owns a home it's [bankrupt individual in his home on the toilet reading a newspaper]
usually sold out from under him and anything left after paying off the
mortgage is used to pay others even if you do survive a bankruptcy your credit
is pretty much ruined who's going to want to loan you money once you've
proven that you're not good with being loaned money yeah if you've defaulted in [a really low credit score chart for a bankrupt individual]
the past on promises to pay people back why wouldn't you do the same thing again
well remember that twenty dollars you loaned your buddy Eric that he never [Person loaning 20 dollars to friend Eric
paid back well how eager are you going to be to hook him up with another twenty
especially since you'd only be feeding his betting on frog fighting habit yeah [Eric betting money on frog fighting]
not so much so long Eric you'll get the help you need!
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