When is a liability considered extinguished?

A liability is considered extinguished when the debtor is relieved of its obligations through payment or release. This means that the debtor has fulfilled the terms of the liability either by paying it off in full or through some form of legal release or settlement with the creditor. When the liability is paid, the obligation is removed from the debtor's balance sheet, reflecting that the debtor no longer has to honor that financial obligation.

In the context of liabilities, it's important to understand that simply selling assets to pay off a liability does not extinguish it until the payment has been made. Transferring a liability to a third party can change who is responsible for the obligation, but does not eliminate it unless the original debtor is formally released from that obligation. Additionally, the expiration of the legal term of a loan does not automatically extinguish the liability without the necessary payments being completed or a release being issued. Thus, the core principle here is that actual payment or formal release is required to extinguish a liability completely.