Are Debt Workouts Too Good To Be True?

I hear it all the time. After sitting with a prospective client and reviewing his situation, his debt and financial strengths and weaknesses, income, etc., I propose a workout strategy to drastically reduce debt and keep the business alive and kicking with a seamless transition. I projecting a workout that involves settling for much less than is owed on business lines of credit, over-leveraged home mortgages, collateralized business loans, credit card debt, vendor debt, unpaid IRS 941 payroll tax debt, SBA guaranteed debt, court judgments, leases, contracts, franchise agreements and any other form of debt imaginable. After concluding my analysis and reporting the likely results I sometimes see a small wry smile and hear such remarks as, “Wow, and your name is Houdini!” Or, “Is this legal? Is this really possible? You must be exaggerating! What are the odds for success? What is the downside?”

And on it goes as some potential clients shrink back in disbelief, finding it difficult to believe a word I say. It all sounds too good to be true and they’ve said so in many different ways. Their attorney or accountant says it’s impossible. “It is impossible to negotiate a settlement on this tax obligation,” they report. They trust their attorney and accountant as well they should, having known and worked with them for years. Yet I insist, I can reduce it dramatically! So, who should they believe?

Here is the deal. It’s not magic, incredible negotiating power, uncanny cleverness. It’s not about being tougher, shrewder, smarter, cagier, slicker. No. It’s not a legal battle or a lawyer’s fight. It’s about being a specialist and knowing the statutes, the regulations, and the unwritten guidelines as well as the written. It’s having the experience to know what works and what doesn’t work. It’s about working with the lender to achieve a win-win resolution for both parties, faster, with less out-of-pocket expense and with a greater return. It’s a business proposal voluntarily entered into by both parties. This works. Presentation, documentation, business logic and yes, placing my clients in the best light possible to achieve the goals we desire. This works.

In the world of debt workout we use the terms “upside down” or “underwater” to describe a debt situation. It’s a world where normal business logic is thrown out the window and other less natural rules control the environment. If one understands these principles, an effective workout becomes a possible resolution and it’s actually good for both the lender and the borrower, even at ten cents on the dollar as hard as that may be to believe. Each party answers to a different set of objectives, not always consistent with one another and not always consistent with what we all think are business practices, but if understood, they become very predictable and workable and very fair and reasonable business practices. Thus a massive workout while retaining assets is very possible, I have been doing it for thirty years, hundreds of them. And I’ve been doing them successfully as have many other workout experts.

There are so many specialists doing amazing things in the areas of science, medicine, computers… the area of debt workouts is no exception. Yes, in many cases, something that seems too good to be true, frequently isn’t true. In the case of a workout, it’s the very concept that is challenging, not a particular application, because it is so unusual and rubs against what we hold to be true and honorable, i.e. paying one’s debts. When told we can avoid this commitment it seems unreal, impossible, undesirable, unnatural. In reality, it’s merely a business proposition and if the bank or IRS or SBA (or whomever) decides to accept the deal offered, it becomes a satisfactory business arrangement agreed to by both parties. No one has forced the other to accept. It’s deemed a fair offer and a wise decision.

Is a great workout too good to be true? Absolutely not. In the hands of an experienced workout specialist, the results are a thing of beauty frequently creating victory out of disaster for all parties involved. Anything done by a master can be pretty amazing and hard to believe. A workout done the right way for the right reasons by a capable professional is very good and the positive results are very true.