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Bankruptcy Options – Debtor and Creditor Workouts

Bankruptcy Options – Reasons for Using a Debtor and Creditor Workout

Rob Peter to Pay Paul

No one want to file bankruptcy, no matter how bad it looks. Fortunately there are options. We always look at the option of a “workout” if possible. A “workout” is simply a negotiated agreement (out-of-court) between the debtor and the creditor for repayment of the debt held by the creditor.

Why choose a negotiated workout?

The first and largest reason is to avoid filing for bankruptcy. Bankruptcy is a legal court ordered judgment that remains on a filer’s records for up to ten years. Filing for bankruptcy will most likely damage your credit and ability to borrow for a long time.

However, utilizing a workout does not affect a debtor’s right to file a bankruptcy at some future date, therefor reserving that option.

In addition it is possible that a workout could have the same – or even better- results than a bankruptcy. Since both the debtor and creditor are willing participants in the negotiation results can be an improvement over bankruptcy.

Other non-bankruptcy alternatives

Compositions and extensions

Compositions are simply contracts where the creditors agree to partial payment from the debtors with the understanding that payment is full completion of all claims. Extensions are contracts where one or more creditors agree to an extension of time for the debtor to pay. Sometimes these can be combined as when a creditors agrees to accept less repayment of the debt over a longer period of time.

Although all creditors are not required to participate in any compositions and extensions, for the plan to work it is advisable that most creditors be part of any agreements. Otherwise the creditors not part of any agreement are entitled by law to take legal action to collect their money separately which could harm existing agreements.


If a small business is just interested in ‘getting out’ then an option is an assignment. In an assignment the debtor ‘assigns’ all nonexempt property to a fiduciary agent who then liquidates all assets and distributes the proceeds pro rata among creditors having filed claims against the business. This must be accepted by all creditors.

Get Professional Advice!

Compositions and extensions are bankruptcy options and have several benefits. Just remember that they are only options and not always the best path to take. This is where the advice of a professional Albuquerque bankruptcy attorney skilled in these areas is worth its cost. We can help! Click here for more information about workouts from Don Harris.

We are a debt relief agency and have practiced bankruptcy law for a combined 50 years. Our services include helping individuals and couples file for bankruptcy relief under the Bankruptcy Code.

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