A debtor and creditor workout may be the best way to alleviate your debt and save you from bankruptcy.
Are you struggling under the weight of debt? If so, you may be considering bankruptcy, but you should also be aware of another possible option – a debtor and creditor workout.
A debtor and creditor workout, sometimes called a non-bankruptcy workout, is a debt modification mutually negotiated between you and your creditors. With the help of a skilled attorney, you may be able to obtain an agreement consisting of compositions and/or extensions.
Composition – an agreement for your creditors to take a partial repayment of your debt.
Extension – an agreement for your creditors to accept repayment of your debt over a longer period of time.
Some debtor and creditor workout agreements consist of both compositions and extensions, meaning that your creditors may agree to accept less money over more time in order to repay your debt.
In 2005, new bankruptcy laws went into effect making it more difficult to file a “fresh start” or Chapter 7 bankruptcy. As a result, a non-bankruptcy workout became the best solution for a greater number of people struggling with their debt.
Advantages of Debtor and Creditor Workouts
Since a non-bankruptcy workout is a voluntary agreement, it can allow the debtor to achieve the same ends as a bankruptcy filing without some of the negative consequences. For example, a debtor and creditor workout agreement typically has a smaller, or sometimes even negligible, effect on a debtor’s credit score in comparison to a bankruptcy filing. Also, a debtor and creditor workout debt discharge does not effect a debtors eligibility to file a future bankruptcy, whereas certain types of bankruptcy filings do. Furthermore, the debt discharge from a debtor and creditor workout is sometimes greater than that from a bankruptcy filing.
The Downside of Debtor and Creditor Workouts
The biggest drawback of a debtor and creditor workout agreement is that it is voluntary on your part as well as that of your creditors. In some cases, creditors may be unwilling to negotiate or offer significantly better terms than your current agreement. However, if your creditors are willing to come to the table, an experienced lawyer can usually reach an agreement that, in the end, benefits both parties.
Speak to an Attorney
Only an experienced lawyer who knows your case can tell you if a debtor and creditor workout is the right option for you. We have over 20 years of experience in financial law, and can help you get out from under the burden of debt.