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Main article: "Sovereign default

Sovereign borrowers such as "nation-states generally are not subject to bankruptcy courts in their own jurisdiction, and thus may be able to default without legal consequences. One example is "Greece, which defaulted on an IMF loan in 2015. In such cases, the defaulting country and the creditor are more likely to renegotiate the interest rate, length of the loan, or the "principal payments.[3] In the "1998 Russian financial crisis, Russia defaulted on its internal debt ("GKOs), but did not default on its external "Eurobonds. As part of the "Argentine economic crisis in 2002, "Argentina defaulted on $1 billion of debt owed to the "World Bank.[4]

Orderly default[edit]

In times of acute insolvency crises, it can be advisable for regulators and lenders to preemptively engineer the methodic restructuring of a nation's public debt—also called "orderly default" or "controlled default".[5][6] Experts who favor this approach to solve a national debt crisis typically argue that a delay in organising an orderly default would wind up hurting lenders and neighboring countries even more.[7]

Strategic default[edit]

Strategic default

When a debtor chooses to default on a loan, despite being able to service it (make payments), this is said to be a "strategic default. This is most commonly done for "nonrecourse loans, where the creditor cannot make other claims on the debtor; a common example is a situation of "negative equity on a "mortgage loan in "common law jurisdictions such as the United States, which is in general non-recourse. In this latter case, default is colloquially called "jingle mail"—the debtor stops making payments and mails the keys to the creditor, generally a bank.

Sovereign strategic default[edit]

Odious debt

Sovereign borrowers such as "nation-states can also choose to default on a loan, even if they are capable of making the payments. In 2008, Ecuador's president Rafael Correa strategically defaulted on a national debt interest payment, stating that he considered the debt "immoral and illegitimate".[8]

Consumer default[edit]

Consumer default frequently concern arrears in rent or mortgage payments, consumer credit, or utility payments. A European Union wide analysis identified certain risk groups, such as single households, being unemployed – even after correcting for the (significant) impact of having a low income -, being young (especially being younger than around 50 years old, with somewhat different results for the New Member States, where the elderly were more often at risk as well), being unable to rely on social networks, etc. Even internet illiteracy has been associated with increased default, potentially caused by these households being less likely to find their way to the social benefits they are often entitled to. While effective non-legal debt counseling is usually the preferred -more economic and less disruptive- option, consumer default can end-up in legal debt settlement or consumer bankruptcy procedures, the last ranging from 1-year procedures in the UK to 6-year procedures in Germany.[9]

Research in the United States has found that pre-purchase counseling can significantly reduce the rate of defaults.[10][11]


  1. ^ "O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 261. "ISBN "0-13-063085-3. 
  2. ^ Greece could be biggest national default in history, June 29, 2015, Patrick Gillespie, CNN Money
  3. ^ Rahnama-Moghadam, Samavati, Dilts (1995). Doing Business in Less Developed Countries: Financial Opportunities and Risks. Quorum/Greenwood. p. 108. "ISBN "0-89930-854-6. 
  4. ^ "Argentina in $1bn loan default". "BBC. December 13, 2002. Retrieved 2008-11-11. Argentina will continue to default on $1bn of debt owed to the World Bank, a move which will effectively isolate the country from all major international lenders. 
  5. ^ M. Nicolas J. Firzli, "Greece and the Roots the EU Debt Crisis" The Vienna Review, March 2010
  6. ^ Nouriel Roubini, "Greece’s best option is an orderly default" Financial Times, June 28, 2010
  7. ^ Louise Armitstead, "EU accused of 'head in sand' attitude to Greek debt crisis" The Telegraph, 23 June 2011
  8. ^ "Ecuador defaults on foreign debt". BBC News. December 13, 2008. 
  9. ^ "Managing household debts: social service provision in the EU". Eurofound.europa.eu. 2012-07-04. Retrieved 2013-10-14. 
  10. ^ Pre-purchase Counseling Is Getting Better All the Time. Freddie Mac.
  11. ^ Pre-Purchase Counseling Benefits Banks and Homeowners. American Banker.


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