If you get behind on your credit card or other loan payments, the lender will start the collection process. This could include obtaining a judgment against you and severely damaging your credit score. However, most lenders will work with you if you have a temporary situation that has affected your ability to pay your debts. A forbearance halts the collection process for a period of time to allow you to get back on your feet financially.
The Forbearance Process
Every creditor has its own rules regarding the collection of overdue debt. While federal and state law provide some regulation over what creditors cannot do, there is no law that requires them to work with debtors over and above the contract terms. However, most creditors have a formal forbearance program where they will agree to suspend collection efforts for a period of 3 to 12 months. Debtors must apply to these programs and the creditors can choose whether to accept the application or not. If the forbearance application is denied, the creditor will continue its collection process.
If you become disabled, you may lose your ability to work or have to take a job with a lower pay. You may also have increased medical expenses that make it difficult to pay your other bills. If the disability is short term, such as a broken leg or viral illness, a creditor may agree to a forbearance arrangement that stops collection action for the length of the agreement. Once the forbearance period comes to an end, the creditor will resume collections. The forbearance will give you time to get healthy again and resume work.
You may not be able to pay your debt because you were laid off from your job or lost a large customer in your small business. A forbearance agreement gives you time to find a new job and have income coming in again. In order to qualify for a forbearance agreement in this situation, you may be required to provide documentation that you lost your job and proof that you are actively searching for another one. Forbearance agreements for unemployment reasons are often shorter in nature than disability claims.
A disaster such as a house fire or tornado might make it difficult to keep up with payments on your debt. Out-of-pocket costs for shelter and basics may take a larger portion of your income. Another catastrophic event that might impact your ability to pay your debt is the death of a spouse or other close family member. In these extreme circumstances, a creditor may enter into a forbearance agreement until the extraordinary financial circumstances have been sorted out.