Also known as: payment defaults · default in payment · defaults in payment · payment delinquency · nonpayment
Written by attorneys · grounded in primary & secondary sources — see below
A failure by a debtor to make a scheduled payment of interest or principal under a debt instrument.
Progressive Healthcare missed three consecutive principal payments on its bank loans. The missed payments left the company insolvent with no corporate records or formalities observed. A creditor sued the dominant shareholder personally and the court weighed the payment default among other factors to decide whether to pierce the veil.
Patriot Insurance issued a note payable in monthly installments. After Patriot missed the June installment without acceleration, the holder treated the note as overdue from the date of default and refused to accept a late cure offered in August.
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Platinum Partners held a note requiring quarterly interest and a balloon principal payment. The maker paid all principal when due but skipped one interest payment. The holder could not declare the note overdue solely because of the interest default.
A payment default occurs when the issuer fails to make a scheduled interest or principal payment. A non-payment default arises from breach of a covenant, warranty, or representation. The distinction matters because grace periods typically apply only to interest payment defaults and to non-payment defaults.
No. Unless the due date of principal has been accelerated, an instrument does not become overdue if there is default in payment of interest but no default in payment of principal.
If the principal is payable in installments and a due date has not been accelerated, the instrument becomes overdue upon default under the instrument for nonpayment of an installment and remains overdue until the default is cured.