Rescission of acceleration: Overview, definition, and example
What is rescission of acceleration?
Rescission of acceleration refers to the process of reversing or canceling a lender’s decision to accelerate a debt. When acceleration occurs, the lender demands the full payment of a loan immediately, often due to a missed payment or breach of contract. The rescission of acceleration allows the borrower to return to the original payment schedule if the default is cured or the reason for the acceleration is resolved.
Why is rescission of acceleration important?
Rescission of acceleration is important because it provides the borrower a chance to restore their original loan terms after addressing the issue that triggered the acceleration. This can be especially helpful for borrowers facing temporary financial difficulties, as it gives them more time to make regular payments without the added burden of paying off the full balance at once. It offers flexibility and protection against the harsh consequences of defaulting.
Understanding rescission of acceleration through an example
Let’s say a business, GreenTech LLC, has a loan with monthly payments. Due to a late payment, the lender decides to accelerate the loan, requiring GreenTech to pay the full outstanding balance immediately. GreenTech resolves the issue by paying the overdue amount and providing assurance that future payments will be made on time. The lender agrees to rescind the acceleration, meaning GreenTech can continue with the original monthly payment schedule rather than being required to pay the entire balance upfront.
In another scenario, a borrower misses a payment on a personal loan, prompting the lender to accelerate the debt. After the borrower pays the overdue amount and corrects the issue, the lender rescinds the acceleration, allowing the borrower to continue with the original repayment terms instead of demanding the full loan amount right away.
An example of a rescission of acceleration clause
Here’s how a clause like this might appear in a contract:
“In the event that the Lender accelerates the loan due to default, the Borrower may request rescission of acceleration if the default is cured within [X] days of notification. Upon rescission, the Borrower will return to the original payment schedule.”
Conclusion
Rescission of acceleration provides a critical opportunity for borrowers to undo the immediate financial strain caused by an acceleration. It allows them to return to the original terms of their loan, avoiding the severe consequence of having to pay off the full balance immediately. This clause helps ensure fairness and flexibility, providing businesses and individuals a way to restore their agreements after resolving any issues.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.