A workout is an arrangement negotiated between a debtor and creditor to manage and resolve a debt, either by paying it off or through loan forgiveness. It is a mutual agreement entered into by a borrower and a lender to reschedule the terms of a loan that is in default. Generally, the workout includes waiving any existing defaults and restructuring the loan’s terms and covenants.
The primary goal of a workout is to restructure debt, avoid default, and resolve financial distress without resorting to formal bankruptcy proceedings. This process typically involves renegotiating the terms of debt obligations, such as extending repayment periods, reducing interest rates, or altering payment schedules.
[Last updated in July of 2024 by the Wex Definitions Team]