Debt workout vs. Bankruptcy, a frequently considered comparison

Bankruptcy is not the best answer for resolving debt. It is costly, time consuming and dangerous as the results are out of your control and can be devastating.

Here is a brief analysis. First of all, with the new bankruptcy act, the trustee can and will order you to repay substantial amounts of credit card and other unsecured debts as well as secured debt. It is no longer a quick path to ridding yourself of all your debts.

Remember the deal is the bankruptcy trustee can absolve you of much of your debt, but not all, at the cost of you also losing your assets. This may seem like a fair deal under certain circumstances but think of the alternative, losing most of your debt and keeping your assets, your business, being the key asset you will lose as it is the income producer.

Additionally its not cheap, between paying the lawyer and the trustee and the court ordered debt service payments, you are in for an expensive ride and it does not end quickly but carries on and on, costing and costing out of your control. Every month you must pay the trustee his fee as well as the court ordered payments to unsecured and secured creditors, as well as your lawyers bill.

Time is an other issue as you will be endlessly involved in frequent motions, reports you must file monthly and other issues the opposition, the secured or unsecured creditors may want to explore while looking to liquidate your assets for their own best interests. Each motion and report requires lawyers and their bills as well as the trustee and his bill. You may even be required to support the various creditors committees lawyers bills, as they are appropriately charged to you…getting worse all the time.

The stress and angst fearing what may happen and what does happen, again outside of your control, is also a very arduous issue, and hardly a walk through the park. It is possible that you may lose your home and your business as this depends on your equity position and cash availability. Too much equity, and not enough cash and you may lose your house for the benefit of the creditors. It is also possible you may have to bring your wife into the bankruptcy as she may be a co-owner of assets, and a guarantor of debt and that is not a fun experience for any business man in trouble.

The business and your home are really the issue as wouldn’t it be a great conclusion to lose most of your debt, all the unsecured and much of the secured, in exchange for a reasonable and comfortable payoff. Keeping your home and business assets intact. This is the objective of a workout and can usually be accomplished cheaper, much faster and with far less loss and less risk.

As well there is the public embarrassment, the public notices and the public liquidation of assets, not fun at all, and another issue your wife will have to deal with irrespective of her entanglement in the bankruptcy proceedings.

Remember the trustee earns two ways, first as a percentage of the cash collected and second his fees. He is definitely working against your best interests, as your demise makes him money, your liquidation and the longer you remain in the system earns him more money.

Additionally, tax debt cannot be absolved through bankruptcy proceedings, so if this is an issue a workout with an offer in compromise is far less painful and expensive and can reduce your debt to the IRS without bankruptcy especially since the IRS debt cannot be discharged through bankruptcy proceedings.

A well designed workout is painless, private and frequently far less expensive as well as usually far more effective in achieving your goals, debt relief and asset protection, privacy and a speedy conclusion.

In my entire career spanning over 30 years of practice, I have never recommended a bankruptcy and only on a very few occasions has a client decided this was the best way for him to resolve his issues. Hundreds of other clients have taken the workout route and remained in business with less debt and a vision of and a renewed opportunity for success.

Before you take the bankruptcy plunge get an opinion from an experienced workout practitioner. Call me, I would be glad to show you some alternative results and options. Call for help 413-549-2966.