What is an 'Event Of Default'

An event of default is an action or circumstance that causes a lender to demand full repayment of an outstanding balance sooner than it was originally due. In many agreements, the lender will include a contract provision covering events of default to protect itself in case it appears that the borrower will not be able to or does not intend to continue repaying the loan in the future. An event of default enables the lender to seize any collateral that has been pledged and sell it to recoup the loan.

BREAKING DOWN 'Event Of Default'

Occurrences that may trigger an event of default include non-repayment of a loan at maturity, breach of contract and declaration of bankruptcy. Event of default clauses can be included not only in loan and lease agreements, but also in business agreements such as joint ventures and partnerships. Such a clause can allow the non-defaulting parties to exit a broken agreement.

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