Given the recent changes to bankruptcy law that make it even harder for the average person to file bankruptcy, it’s no wonder that non-bankruptcy workouts are becoming more popular. Creditors’ desire to collect the debts owed them, rather than watch the money disappear as it does during bankruptcy, is surely part of the push to popularize non bankruptcy workouts.
These workouts are agreements between creditors and debtors about how to pay the money back. Creditors and debtors negotiate about the debts and work out an equitable agreement for both sides. There is no bankruptcy filing on the debtor’s records in this case.
Compositions and Extensions
Compositions result when two or more creditors agree to take partial payment to satisfy a debt. Extensions occur when two or more creditors agree to extend the amount of time in which a debt should be paid. Sometimes the two are combined so a creditor will take less money to satisfy the debt and allow it to be paid over a longer time.
Rather than the paperwork necessary with bankruptcy, non-bankruptcy workouts are affected more by contract law than credit laws. It has to meet the requirements of a formal contract in the state in which it’s signed.
It’s an ideal solution for someone who has two or more creditors willing to go forward with a non-bankruptcy workout, but some creditors don’t want to handle the debt that way. Creditors who don’t want to take advantage can still attempt to collect the money owed them in other ways.
A Voluntary Way to Settle Debt
Unlike the conditions in a bankruptcy where creditors are given a certain amount of the money owed them or none at all, entering into non-bankruptcy workouts are taking voluntary steps to resolve their debt problems.
Often, creditors look upon that effort very favorably, even if they don’t intend to become part of the workout. Any effort that you make to contact a creditor and explain that you’re behind, and why, is a step in the right direction. While some creditors are known for turning their outstanding debts over to a collection agency, a creditor would much rather you pay your bill with them directly. If you contact the creditor about your difficulty to pay, you might be surprised at the reaction.
Often a creditor will be more lenient and understanding with a debtor who is up front about his or her payment problems, and negotiating the non-bankruptcy workout will become much easier because they’re convinced about your ability and willingness to pay and eventually eliminate your debt.
A non-bankruptcy workout can only work if you can get two or more of your creditors to join in. Be sure and contact all your creditors. You might be surprised how many will be interested. If only one creditor is willing to participate in the workout, then you’ll have to enter into a separate agreement with them. Other debtors can still attempt to collect their debts.
Geygan & Geygan, Ltd. is a Debt Relief Agency because we help people live without debt through various means including bankruptcy.