Workout is an arrangement negotiated between a debtor and creditor to take care of a debt, by paying it off or through loan forgiveness. A workout agreement 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 loans terms and covenants.
Cases such as this one from New Jersey, explain that “’workout agreement’ is any action undertaken by a lender or secured party to prevent, mitigate, or cure a default by the borrower or to preserve or prevent diminution in value of the security for the loan.”
[Last updated in November of 2021 by the Wex Definitions Team]