Forbearance Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Forbearance, written in plain English, along with examples of how it is used.
What is Forbearance?
(n) Forbearance is the willful grant of time allowed to a party to the contract to fulfill his part of obligation with or without claiming additional compensation
History and Meaning of Forbearance
Forbearance refers to the act of holding back or showing patience when it comes to enforcing a legal right. In the legal world, it is a term used to describe the willingness of one party to give another party some additional time to fulfill its obligations under a contract, without imposing financial penalties or other consequences for the delay.
This can involve the creditor or lender agreeing to postpone or reduce payments temporarily or forgiving late payments altogether. Forbearance is often granted when a borrower experiences financial hardship and can't make payments as scheduled. It is a flexible arrangement since it offers the debtor some relief from the financial burden while also helping the creditor recoup their outstanding debts.
Examples of Forbearance
The borrower of a mortgage loan may request forbearance from the lender if they are struggling to make payments due to economic hardships. The lender may agree to suspend payments for a period of time without reporting the late or missed payments to credit bureaus.
A tenant who is unable to pay rent on time may request forbearance from their landlord, asking them to waive the late fee or delay the payment deadline until they are able to pay.
A payment processor may extend forbearance to merchants who are delayed in paying transaction fees or other charges, allowing them to catch up on payments without being considered delinquent.
Legal Terms Related to Forbearance
Repayment plan: An agreement between a debtor and creditor outlining a schedule for repaying outstanding debts and interests.
Moratorium: A temporary or permanent delay on the enforcement of a legal right, often regarding the eviction of tenants or the collection of debts.
Default: Occurs when a party fails to meet their contractual obligations, which may trigger financial penalties or legal action.