Debt can be your best friend, or your worst enemy.

Debt can work well for you in many different ways, it can be your best friend in ways you may not realize. Its greatest virtue, of course is it allows you to leverage larger amounts of money then you may have in liquid assets, such as cash on hand. How else could we purchase a home worth hundreds of thousands of dollars as few have so much in their savings accounts.

Incurring debt means you received some benefit, be it services, cash, credit for product purchased, financing for major acquisitions. It is a necessary and beneficial part of life and doing business. What would we all do without credit cards or mortgages.

We even incur debt to the Federal Government as we receive income and owe taxes to the IRS. However debt can also work for you in more unusual ways.Just as frequently we can get buried under too much debt, with interest rates that make the debt grow faster then imaginable, and can become unaffordable, and thus destructive, potentially leading you into foreclosure, liquidation or perhaps even thoughts of bankruptcy (Perish the thought).

In response to too much debt, the debtor frequently pays and pays and self destructs while trying to service debt that has become unaffordable, at the end penniless and still in debt over his head, and forced into self liquidation or bankruptcy after draining all his reserves and remaining liquidity, debt can be a destructive force if not utilized effectively.

There is a better answer, use the debt to your advantage, too much debt means no one can get fully paid as the liquidation value of the assets are less then the debt owed. Thus the only plan for survival and re-emergencewith your assets intact is a workout plan. Using your debt as a shield to create a universal workout, reducing the lower priority debt to zero or small distributions and concentrating on the higher priority secured debt and personal guarantees.

Why even consider bankruptcy? It may rid you if debt but it also makes certain your assets are also liquidated for the benefit of the creditors. A workout allows you to keep your assets and simply pay the reduced workout amount which should be affordable as it was structured based on your net worth, liquidity and liquidation value.

Since debt resolution has some basic rules, understanding these rules allows you to trump lower priority debt, such as unsecured vendor debt as you allocate the majority of your liquid resource to reduce the secured debt. Since only the first priority secured debt has a clear shot at everything you owe, if you do the math that may be the best answer of all. Pay the first secured priority and announce to all others there is nothing left and that’s the end of the story and the end of the distributions.

So in this case why file a bankruptcy when in all reality the only creditor you may have to pay is the first lien holder. If you have inadequate funds to pay off the first, then the next computation is the fair market value or liquidation value of the secured asset and depending upon its worth, the secured party may be willing to take allot less then the debt and release the asset and the remaining debt back to you.

That’s a workout that works.

You will need some cash and this may come from a hard money loan or a high interest loan of a smaller amount then what is owed but enough to entice the lender to take the smaller loss and walk away. So before you pay another high interest loan to low priority lenders, think about a workout and call me for an analysis of your situation, you may be ripe for a workout. 413-549-2966.