Bankruptcy is one option for debt relief, but it may not be the only solution, or the best one. At Rayman & Knight, we review with our clients all the options available for resolving their financial difficulties. These include:
- Workouts A "workout" is an attempt by a debtor to solve a financial problem outside of a court proceeding, by reaching an agreement with creditors. One advantage to a workout is flexibility; the business can design as creative a solution as creditors are willing to consent to. For this reason, workouts are usually preferred to bankruptcy. However, a workout, by its nature, requires all creditors to consent. If even one or two are unwilling to accept the proposed solution, bankruptcy may become the only solution. Occasionally this possibility motivates creditors to accept a workout, as the funds that might have been paid toward the expenses of a Chapter 11 bankruptcy can be directed to creditors instead.
- Assignment for the Benefit of Creditors An assignment for the benefit of creditors is a liquidation of a business’s assets pursuant to state law. This is a potential alternative to a Chapter 7 bankruptcy for a business. Instead of a trustee, an independent assignee takes control of the assets of the business. Because of the nature of this option, assignments for the benefit of creditors is not an option for a business that does not wish to liquidate and close down operations.
- Forbearance Agreements A forbearance agreement is an agreement between a lender and borrower to postpone, reduce, or suspend payment due on a loan for a specific, limited time period. The borrower remains responsible for interest on the loan that accrues during the forbearance period. The lender’s agreement not to foreclose on the property or accelerate payments is made in exchange for the borrower’s agreement not to fight the creditor’s efforts to collect, should the borrower fail to abide by the agreement’s terms. Sometimes, the borrower offers the lender a “deed in lieu of foreclosure” in the event that it does not live up to the terms of the agreement.
- Renegotiation of Credit Card and Other Debt Often, creditors who refuse to deal directly with debtors seeking to renegotiate the terms of their debt are more willing to negotiate with the debtor’s attorney. The possibility of many debtors seeking bankruptcy protection is high if they are unable to renegotiate their debt. Creditors understand this, and may be willing to accept a reduced payment rather than risk the debt being erased completely by a bankruptcy.
If you would like to explore possible resolutions to your personal or business debt problems, we invite you to contact Rayman & Knight to schedule a consultation.