> For the complete documentation index, see [llms.txt](https://triple-plus-global.gitbook.io/tpt-whitepaper/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://triple-plus-global.gitbook.io/tpt-whitepaper/risk-framework/default-handling.md).

# Default Handling

When a debtor fails to pay, the protocol follows a structured recovery process.

***

## Default Flow

{% @mermaid/diagram content="flowchart TD
A\["Maturity Date<br/>Reached"] --> B{"Payment<br/>Received?"}
B -->|Yes| C\["Normal Settlement"]
B -->|No| D\["Grace Period<br/>(7-14 days)"]
D --> E{"Payment<br/>Received?"}
E -->|Yes| F\["Late Settlement<br/>+ Late Fees"]
E -->|No| G\["Default Declared"]
G --> H\["Collection Process"]
H --> I\["Recovery Distribution"]
I --> J\["Insurance Claim<br/>(if applicable)"]" %}

***

## Timeline

| Day   | Event                          | Status              |
| ----- | ------------------------------ | ------------------- |
| 0     | Maturity date                  | Awaiting payment    |
| 0-7   | Grace period (standard)        | Late, not defaulted |
| 7-14  | Extended grace (if applicable) | Still late          |
| 14+   | Default declared               | Collection begins   |
| 14-90 | Active collection              | Recovery efforts    |
| 90+   | Write-off consideration        | Partial/full loss   |

***

## Grace Period

Before declaring default, the protocol allows time for:

| Reason                        | Grace Period |
| ----------------------------- | ------------ |
| **Payment processing delays** | 3-5 days     |
| **Bank transfer timing**      | 5-7 days     |
| **Administrative issues**     | 7-14 days    |

During grace period:

* Late fees may accrue
* Investor notified of delay
* Debtor contacted for status

***

## Default Declaration

A default is formally declared when the grace period expires, no payment is received, and there is no credible payment plan.

{% stepper %}
{% step %}

### Criteria for declaration

* Grace period expires
* No payment received
* No credible payment plan
  {% endstep %}

{% step %}

### On-Chain Record

Default declaration creates:

* Permanent on-chain record
* Asset status change to "Default"
* Trigger for collection process
  {% endstep %}
  {% endstepper %}

***

## Collection Process

{% stepper %}
{% step %}

### Formal Demand

| Action                    | Timeline |
| ------------------------- | -------- |
| Send formal demand letter | Day 1    |
| Allow response period     | 7 days   |
| Escalate if no response   | Day 8    |
| {% endstep %}             |          |

{% step %}

### Collection Agency

| Action                   | Timeline     |
| ------------------------ | ------------ |
| Engage collection agency | Day 8-14     |
| Agency contacts debtor   | Ongoing      |
| Negotiate payment plan   | As available |
| {% endstep %}            |              |

{% step %}

### Legal Action

| Action                     | Timeline      |
| -------------------------- | ------------- |
| Initiate legal proceedings | Day 30-60     |
| Court filing               | As required   |
| Judgment enforcement       | Post-judgment |
| {% endstep %}              |               |
| {% endstepper %}           |               |

***

## Recovery Distribution

When funds are recovered:

{% @mermaid/diagram content="flowchart LR
R\["Recovered<br/>Funds"] --> C\["Collection<br/>Costs"]
C --> P\["Protocol<br/>Fee"]
P --> I\["Investor<br/>Distribution"]" %}

| Priority | Recipient        | Description                          |
| -------- | ---------------- | ------------------------------------ |
| 1        | Collection costs | Third-party fees                     |
| 2        | Protocol fee     | Standard settlement fee              |
| 3        | Investors        | Remaining funds distributed pro-rata |

### Partial Recovery

If only partial amount recovered:

| Recovery % | Investor Outcome          |
| ---------- | ------------------------- |
| 100%       | Full principal + yield    |
| 75%        | 75% of principal returned |
| 50%        | 50% of principal returned |
| 0%         | Total loss                |

***

## Insurance (Future)

Credit insurance may cover defaults:

| Coverage Type              | Description                    |
| -------------------------- | ------------------------------ |
| **Trade Credit Insurance** | Covers debtor non-payment      |
| **Political Risk**         | Covers country-specific issues |
| **Fraud Coverage**         | Covers seller fraud (limited)  |

{% stepper %}
{% step %}

### Claim initiation

* Default declared
* Claim filed with insurer
  {% endstep %}

{% step %}

### Investigation

* Insurer investigates
  {% endstep %}

{% step %}

### Resolution

* Claim approved/denied
* Payout to investors
  {% endstep %}
  {% endstepper %}

{% hint style="info" %}
Insurance features will be announced when available.
{% endhint %}

***

## Investor Notifications

Investors receive updates at each stage:

| Event                 | Notification  |
| --------------------- | ------------- |
| Maturity reminder     | 7 days before |
| Grace period entry    | Immediate     |
| Default declaration   | Immediate     |
| Collection updates    | Weekly        |
| Recovery distribution | Upon receipt  |

### Notification Channels

* Email (if provided)
* Dashboard alerts
* On-chain events (for monitoring)

***

## Historical Default Data

Once the platform has operating history:

| Metric               | Description               |
| -------------------- | ------------------------- |
| **Default Rate**     | % of assets that default  |
| **Recovery Rate**    | % recovered from defaults |
| **Time to Recovery** | Average collection period |
| **Loss Rate**        | Net loss after recovery   |

{% hint style="warning" %}
Historical data will be published as the platform matures. Past performance does not guarantee future results.
{% endhint %}