Often, one partner wants to do the workout and the other does not. This happens frequently. Partners have different financial conditions, different attitudes and different objectives, which may result in different workout strategies.

This really is not a problem for the one doing the workout, as each partner is judged and assessed on his own financial conditions. It is important to understand, however, that each guarantor is obligated on 100% of he debt. If one partner pays off 10% of the debt, the other is obligated to pay the remaining 90%. It is called being singularly and severally obligated on the note, i.e., each owes it all.

The second issue to understand is that your workout is based on your net liquidated value. This means that if  all of your assets were liquidated via foreclosure and auction, what the yield would be is presumably the workout result. Thus, the liquidation can be avoided by doing the math and paying over that amount. Of course, the challenge is to make that number as low as possible without running afoul of fraudulent transfer laws.

It is a basic understanding and reality that a debtor is not only entitled to, but expected to present his financial condition in a light most beneficial to himself and not to the bank, but within the guidelines of fair play, rules and regulations. Thus, transfer of a family home to a spouse for $1.00 will not work. On the other hand, if your wife can get a mortgage and refinance the house into her name then this asset may be out of reach of the bank. One important document to look at is the application for the original loan, as well as your financial statement that accompanied it. If assets are removed, changed, etc., you need to have an explanation and it must be viable and supportable.

Each partner is entitled to a separate workout and to submit his own “Offer in Compromise” to achieve the lowest possible result. If one partner chooses to not resolve the issue with a workout, they will be confronted with the full force of the banks collection capabilities, including lawsuits, wage garnishment, sweeping bank accounts, and other forms of collection. It is never a pretty picture and they will exhaust their legal remedies; even if it seems to be counterproductive, it is what they do.

Borrowing money is serious business and failure to repay has enormous consequences. Be forewarned and be prepared.