Default is the failure of a debtor to meet the provisions agreed upon in a loan agreement. Typical consumer default involves the failure to make payments on a personal, automobile or home loan. Business default involves failure to make timely interest and principal payments on BONDS or corporate LOANS. When default occurs (which is usually defined in the lending agreement), the lender may make claims against the borrower’s ASSETS in order to recapture the funds loaned to the individual or business. In consumer credit markets, lenders often apply the FIVE CS OF CREDIT: character, capacity, CAPITAL, conditions, and collateral. When a consumer defaults on a loan, lenders usually foreclose on the collateral provided by the borrower, entailing repossession of the asset. The repossession process varies from state to state depending on consumer-lending laws. Lenders recognize that a certain percentage of loans will end in default. Most consumer defaults are caused by “trigger events” such as death, divorce, disease, or business downsizing. When making loans, the likelihood of failure to receive payments is referred to as default risk. Higherrisk loans are assessed higher INTEREST RATES. Consumer advocates are especially critical of lending practices in the subprime market, where borrowers are sometimes are sold products with payments they cannot feasibly make, resulting in excessively high default rates. Lenders in subprime or nonprime mortgage markets frequently repossess homes, sometimes literally towing manufactured housing off a borrower’s property. In securities markets, bonds are evaluated for the likelihood of default by MOODY’S RATINGS, STANDARD AND POOR’S, and other rating services. Junk bonds, considered riskier than investment-grade bonds, have a higher risk of default. In 2001 corporate bond defaults were predicted to rise primarily in the telecommunications industry due to overinvestment in telecommunications delivery systems. Default is not limited to businesses and consumers. In the largest public-sector default action, Washington Public Power Supply System (WPPSS, known as Whoops) borrowed billions of dollars to construct nuclear power plants. In 1983 cost overruns, changing market conditions, and poor management led to the failure to complete construction and thus default on the WPPSS bonds. Many bondholders first learned about the difference between general obligation (backed by the taxation power of the government agency that issues them) and revenue bonds (backed by the anticipated revenue from the project they are used to fund) from experience with the default of the power-plant bonds. Default rules are regulated by the UNIFORM COMMERCIAL CODE. Article 9 of the code is a set of rules that govern the taking of most types of collateral for loans, how to protect lenders’ rights to collateral against claims by others, how to describe collateral in security agreements and FINANCIAL STATEMENTS, where to file financing statements, and what rights a lender has after default. Default rules are a complex but critical part of sound lending decisions.