For some people and businesses, bankruptcy is the answer. For others, it is not. There are many circumstances in which the filing of a bankruptcy case may not be the best option. For example, you may have assets that will be at risk if you file for bankruptcy or you may have too much equity in your home. You may have certain debt that will not be discharged in bankruptcy or you may simply not qualify for bankruptcy relief. In those instances, a better option may be to negotiate with your creditors.
Depending on your particular circumstances, you may be able to negotiate with your creditors, whether directly or through an attorney, to settle your outstanding obligations for less than the full amount due. In the alternative, you may be able to change the terms from the original agreement with the creditor, to terms that are more workable for you. Some creditors are willing to accept a lesser amount, if you are able to make a lump sum payment in the near future. Others may be willing to reduce the amount of the monthly payment or to reduce the interest rate – either on a permanent basis or temporarily. The longer that your account has been in default, the more likely the creditor is to settle with you – and for a lesser sum.
There is nothing that requires a creditor to work with you. However, the majority of creditors understand that entertaining settlement offers and making your repayment terms more manageable for you, increases their chances of receiving payment. For this reason, creditors are often willing to work with you.
A loan workout is one alternative to filing bankruptcy. It is a term used when you, the borrower, restructures an already existing loan agreement. When you default on a loan, usually by falling behind on payments, you can reach out to the lender to try to work things out, so that the lender does not take any collection action against you. You ordinarily begin by explaining the circumstances that caused the default and then proposing a reasonable plan to put the loan back in good standing. Sometimes the terms of loan are changed, either temporarily or permanently; other times past due amounts might be put on the “back end” of the loan. Under any loan workout scenario, you must gain the consent of the lender. Often the parties will engage in quite a bit of discussion, negotiation, and exchange of documents, prior to a settlement being reached. Even if your attempt at a loan workout is not successful, there are usually no negative consequences for trying.