Legal Definitions - extinguishment

Extinguishment is when a legal right, interest, or contract is cancelled or destroyed. This can happen when a debt is paid off in full and the creditor releases the borrower. It can also happen when a creditor accepts a higher security.

Example 1: John owes $10,000 to his credit card company. He pays off the entire balance and the credit card company releases him from the debt. The debt is now considered extinguished.

Example 2: Sarah has a car loan with a bank. She decides to sell the car and use the money to pay off the loan. The bank accepts the money and releases Sarah from the loan. The loan is now considered extinguished.

These examples illustrate how extinguishment occurs when a debt is paid off in full or when a creditor accepts a higher security. In both cases, the legal right or interest is cancelled or destroyed, and the borrower is released from their obligation.