Forbearance Agreement

Category: finance

A short-term agreement where a lender agrees not to exercise their legal right to foreclose, giving the borrower time to catch up on payments.

Forbearance is the "pause button" used right before bankruptcy. The borrower admits they are in default, and the bank agrees to hold off on suing for 90 days if the borrower hits certain financial milestones. It is an out-of-court tool used to try and avoid filing for Chapter 11 entirely.

Common Examples

• The commercial real estate developer secured a six-month forbearance agreement from the bank while they sought a new equity partner.
• Violating the strict financial reporting covenants inside the forbearance agreement will trigger immediate foreclosure proceedings.