What is a 'forbearance agreement'?

A forbearance agreement is an arrangement made between a borrower and a lender that allows the borrower to temporarily pause or reduce their loan payments without risking default. This typically occurs after the borrower has experienced financial difficulties, allowing them more time to improve their situation and resume regular payments. The objective is to help the borrower avoid foreclosure or further penalties while providing them with a reprieve from their immediate financial obligations.

The other options represent different concepts that do not align with the definition of a forbearance agreement. For instance, a contract guaranteeing full repayment pertains more to the assurance of payment rather than the accommodation of temporary relief. A document requiring all creditors to agree on a restructuring plan relates to consensus in a larger debt restructuring context, while a legal document prohibiting asset sales addresses asset management rather than payment timing. Therefore, the correct choice accurately reflects the primary purpose of a forbearance agreement in financial contexts.