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Forbearance
Also called forbearance agreement, workout agreement, standstill.
A written agreement in which a creditor holds off on its remedies for a defined period while the borrower performs a modified payment plan.
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What it means
Forbearance is not forgiveness and not a modification. The original obligation survives intact; the creditor simply agrees not to enforce it for a while, on conditions.
A standard agreement contains most of the following: an acknowledgment that the borrower is in default, a stipulation to the exact amount owed, reaffirmation of the guaranty, a release of all claims the borrower may have against the creditor, a payment schedule for the forbearance period, a hard expiry date, and a provision that any breach ends the forbearance immediately and restores every remedy. Some add new collateral, a new guarantor, or in jurisdictions where they remain available, a stipulated judgment to be entered on breach.
Creditors sign them because collecting something beats litigating. Borrowers sign them because the alternative is enforcement next week.
Where this one catches people
The price of the pause is usually your defenses. The release and the stipulated balance are the creditor's real objective, and once signed, any argument you had about the original transaction is gone: recharacterization, misrepresentation by the broker, unauthorized debits, fee disputes. Get the number right and get advice before agreeing it is correct, because you are certifying that it is.
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Forbearance — common questions
What does forbearance mean?
A written agreement in which a creditor holds off on its remedies for a defined period while the borrower performs a modified payment plan.
Where does forbearance catch people out?
The price of the pause is usually your defenses. The release and the stipulated balance are the creditor's real objective, and once signed, any argument you had about the original transaction is gone: recharacterization, misrepresentation by the broker, unauthorized debits, fee disputes. Get the number right and get advice before agreeing it is correct, because you are certifying that it is.
Is forbearance the same as an interest rate?
Forbearance is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does forbearance apply to?
It is not specific to one product — it appears across the market.
Is there a worked example of forbearance?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside forbearance?
Confession of judgment, Default, Deferred payment, Demand letter, Personal guarantee.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.