What is a 'Moratorium'

A moratorium is a period of time when there is a suspension of a specific activity until future events warrant a removal of the suspension, or issues regarding the activity have been resolved. Such action may be imposed by a government, or it may be taken voluntarily by a private business.

BREAKING DOWN 'Moratorium'

Usually taken in times of economic crisis, such as an earthquake or flood, a moratorium provides people with time to stabilize their finances before dealing with potential problems, such as a mortgage default and foreclosure.

Moratoriums are most often enacted in relation to financial hardships. This can include voluntarily imposed conditions set by a business designed to lower costs for a period of time, as well as legally mandated requirements to cease certain financial activities, such as attempts to collect a debt.

Moratoriums and Legal Bankruptcy Proceedings

In bankruptcy law specifically, a moratorium refers to a legally binding halt of the right to collect debt. The placement of a moratorium allows for the individual or entity filing for bankruptcy an opportunity to review current standings, providing protection for the debtor as a plan is created. This form of moratorium is more common in Chapter 13 bankruptcy filings where the debtor is looking to restructure the repayments of any associated debt obligations.

Emergency Moratoriums

A government official may declare a moratorium on certain financial activities in the event of a crisis. This can include protecting consumers in cases where a state of emergency is declared after a natural disaster, or spending changes in response to a financial crisis.

For example, in 2016, the governor of Puerto Rico issued an order to limit the withdrawal of funds from the Government Development Bank. This effectively established a moratorium on all withdrawals that were not related to bank principal or interest payments, lessening the risks associated with the bank's liquidity.

Examples of Voluntary Moratoriums in Business

If a company is experiencing financial difficulties, it can place a moratorium on certain activities to lower costs. The business may limit discretionary spending, or it may cut back on company-provided travel benefits or non-essential training.

Moratoriums of this nature as designed solely to lessen unnecessary spending and do not affect a business's intent to repay debts or manage all necessary operational costs. These steps can be taken to counteract the company's financial hardships without having to default on debt obligations, providing a vehicle to get spending more in line with current company revenues.

RELATED TERMS
  1. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  2. Voluntary Bankruptcy

    A type of bankruptcy where an insolvent debtor brings the petition ...
  3. Bankruptcy Abuse Prevention And ...

    Legislation enacted by President George W. Bush in 2005 that ...
  4. 341 Meeting

    The meeting of creditors that occurs when an individual files ...
  5. Chapter 10

    A type of corporate bankruptcy filing in the U.S. Chapter 10 ...
  6. Debt Fatigue

    When a debtor stops making payments on his or her debts and starts ...
Related Articles
  1. Taxes

    Changing The Face Of Bankruptcy

    A 2005 law attempts to unmask fraudulent debtors and still save those who are struggling. Will it affect you?
  2. Taxes

    When To Declare Bankruptcy

    When is bankruptcy the best or only route– and when is it better to look at alternative solutions? And should you always hire a lawyer?
  3. Taxes

    How To Survive A Bankruptcy Filing

    Learn how to make filing for bankruptcy less painful so you can successfully rebuild your financial life.
  4. Financial Advisor

    Should You File For Bankruptcy?

    Find out how to determine whether this option will help or hurt your financial situation.
  5. Investing

    A Strong And Noble Driller

    Relative to its future growth potential, Noble shares look incredibly attractive.
  6. Taxes

    5 Myths About Personal Bankruptcy

    There are some persistent myths that hover over the process of bankruptcy that are either half-truths or completely false.
  7. Small Business

    Taking Advantage Of Corporate Decline

    A bankrupt company can provide great opportunities for savvy investors.
  8. Investing

    5 Energy Companies Crushed by Low Oil in 2016

    Oil companies globally are at risk of slipping into bankruptcy, and many of these businesses could disappear, leaving the sector worse off than in 2008.
  9. Taxes

    How to Hire a Bankruptcy Lawyer

    How do you find the right bankruptcy lawyer? What you should look for to determine the right attorney for you.
RELATED FAQS
  1. What effect did the Bankruptcy Abuse Prevention and Consumer Protection Act of 2 ...

    Credit card companies and banks hate deadbeats who take from their bottom lines. They especially dislike the Chapter 7 bankruptcy ... Read Answer >>
  2. What are the differences between Chapter 7 and Chapter 13 bankruptcy?

    Read about some of the primary differences between a Chapter 7 and Chapter 13 bankruptcy, including who may be ineligible ... Read Answer >>
  3. What happens when a corporation declares bankruptcy?

    Understand what options are available to corporations under bankruptcy protection, and learn what takes place after bankruptcy ... Read Answer >>
Hot Definitions
  1. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  2. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  3. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  5. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  6. Merchandising

    Merchandising is any act of promoting goods or services for retail sale, including marketing strategies, display design and ...
Trading Center