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What is a forbearance agreement and how does it work?

A loan forbearance agreement is an arrangement between a lending financial institution and a borrower in arrears with loan repayment. The lender agrees not to pursue its legal right to foreclose on the loan, and the debtor agrees to a forbearance plan that enables him or her to catch up with loan repayment. For example, a bank may edit the loan repayment schedule to initially pause or reduce payments, and then temporarily increase monthly payments by adding a portion of the postponed overdue amount to the new schedule of payments.