A default is when a creditor fails to repay its debt on time. A default is called a sovereign default when a country fails to repay its debt, like Russia in 1998. In the event of a likely default, the lenders usually take the creditors to court to decide how repayment should proceed, which often involves creditors agreeing to take a “haircut” on their payments to prevent the country from being able to repay none of it. When risk of default rises, the interest rate on government debt correspondingly rises to compensate the bondholders for taking on the default risk.