Default occurs when a debtor (borrower) has not met its legal obligations according to the debt contract, such as not made a scheduled payment, or has violated a loan condition of the debt contract. Default may occur if the borrower is either unwilling or unable to pay their debt. This can occur with all debt obligations including mortgages, loans, and promissory notes.

The term default could be distinguished from the terms insolvency and bankruptcy. "Default" essentially means a debtor has not paid a debt. "Insolvency" is a legal term meaning that a borrower is unable to pay his/her debts. "Bankruptcy" is a legal finding that imposes court supervision over the financial affairs of those who are insolvent or in default on debt obligations owed.

With most debt (including mortgages and bank loans) a covenant is included in the debt contract which states that the total amount owed becomes immediately payable on the first instance of a default of payment also known as an acceleration clause.

Also see: Buyer Default and Seller Default