If a private individual goes to a bank and asks to take out a loan, and then starts asking about the possibility of more forgiving terms in the case of a default, the bank suddenly becomes incredibly suspicious.
Well, moral hazard is a thing. Besides, the borrower always has the option of bankruptcy. You're talking about the situation when the debtor thinks he might not pay back the loan and not declare bankruptcy, right? I don't see why the bank should be sympathetic.
I also have trouble imagining the situation you're describing. Banks rarely lend money outright to individuals without any protection. The great majority of loans involve collateral -- a house (in the case of a mortgage), a car (in the case of an auto loan), securities (in the case of the margin loan at the broker), etc. And in practice, if you default, the bank gets the collateral and that's the end of it.
Given this, what kind of "debtor forgiveness clauses" do you have in mind and what protections against abuse will be there?
An example might be an auto loan with a clause that allows a debtor who is rendered unable to pay through no fault of their own (as judged by a court or other agreed upon mediator, for example) does not lose their car (the collateral) despite not being able to pay. And to compensate the bank for this low probability but high impact loss, they pay slightly higher interest rates.
Another month, another rationality quotes thread. The rules are: