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Simple English definitions for legal terms
passive debt
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A quick definition of passive debt:
Passive debt is money that someone owes to another person or entity, but there is no interest charged on it. It is a type of liability that can be either a specific amount of money owed or the total amount of all outstanding debts. Debt can also be in the form of goods or services owed to someone else. There are different types of debt, such as secured debt, unsecured debt, and short-term debt. Some debts may be discharged through bankruptcy, while others may be considered nondischargeable.A more thorough explanation:
Passive debt is a type of debt that is interest-free, as agreed upon by the debtor and creditor. It is a liability on a claim, which means a specific sum of money that is due by agreement or otherwise. Passive debt is the opposite of active debt, which is a debt due to another person.
Example: John owes $5,000 to his friend Tom. They agree that John will pay back the debt without any interest. This is an example of passive debt.
Passive debt is beneficial for debtors as they do not have to pay any additional interest on the borrowed amount. However, creditors may not prefer passive debt as they do not earn any interest on the loaned amount.