What is a ‘moratorium’
A moratorium is a temporary suspension of activities or the right until future events warrant a removal of the suspension or issues regarding the activity have been resolved. The moratorium may be imposed by the government or business.
Moratoria are often adopted in response to financial difficulties. Financial moratorium may include voluntarily imposed under the terms established business designed to reduce costs. They can also be as well as the legal requirements for the cessation of certain financial events, such as attempts to collect the debt.
Breaking down the ‘moratorium’
Usually adopted in times of economic crisis such as earthquakes or floods, the moratorium gives them time to stabilize their finances before dealing with potential problems, for example, mortgage and foreclosure.
In bankruptcy law, a moratorium refers to a legally binding terminate the right to collect the debt. Placing a moratorium allows natural or legal person in bankruptcy an opportunity to analyze the current situation. This timeout protects the debtor during the creation of a plan for recovery. A moratorium on this kind of characteristic in Chapter 13 filings for bankruptcy if the debtor wants to restructure the repayment of any associated debt.
A government official may declare a moratorium on certain financial activities in the event of a crisis. This may include protection of consumers in cases where a state of emergency is declared after a natural disaster or cost changes in response to the financial crisis.
For example, in 2016 the Governor of Puerto Rico issued an order to restrict the withdrawal of funds from the state development Bank. This emergency set a moratorium on all payments that are not associated with the Bank interest payments, thereby reducing the risks associated with Bank liquidity.
Examples of voluntary Moratoria in business
If the company experiences financial difficulties, it may establish a moratorium on certain activities to reduce costs. The business may limit discretionary spending, or it can reduce company-provided benefits for travel and incidental learning.
Moratoriums of this nature is solely intended to reduce unnecessary costs, do not affect the business’s intention to repay the debts or control of all necessary operating costs. These steps can be taken to counteract the financial difficulty without defaulting on debt obligations. This voluntary moratorium is a means for obtaining costs in line with current revenues.
Many insurance companies issue a moratorium on specific areas when natural disasters or uprisings occur. Moratorium to help mitigate losses when the probability of claims filed is too high. For example, in February 2011, MetLife issued a moratorium on writing new policies in many Texas counties due to uncontrolled fires. In 2014, many insurance companies have issued a moratorium on writing new policies in Ferguson, Missouri and the surrounding areas because of the unrest the result of a controversial verdict.