Dear Banker, Something Is Better Than Nothing So Let’s Work It Out
Dear Banker,
We represent many, many small businesses that are in default.
Almost universally:
1. The owner has not taken a paycheck for a long while, sometimes years, and has been living off credit cards, savings, and their spouse’s earnings.
2. The owner has already wiped out their 401k and IRA, as well as any cash values in their insurance policies.
3. They have used their kids’ college funds and their parents’ savings.
4. They have taken out second mortgages on their homes and are in default on them.
In short, in most cases, there is nothing left. The borrower has already liquidated themselves completely in an attempt to make the business work.
I believe that most borrowers in default want to pay their debts and have no desire to enter into a workout at all, ever. In fact, they abhor the prospect of an Offer In Compromise almost as much as they despise the thought of bankruptcy, even though they probably should be filing. I believe most borrowers in default act as honorably as a person can, absorbing as much sacrifice as possible before they enter into default in a herculean attempt to be honorable and to make the business work.
Perhaps we can work together to end this disaster with honor from both sides? Perhaps the borrower in default has paid with enough sacrifice and should be treated as such and let go at some point. Yes, the bank is suffering a loss, and yes, it is their job to reduce these losses as much as possible, but maybe when enough is enough, you should let them go. Of course, there is the possibility of bankruptcy, but then there is total loss for everyone. Why force the defaulting borrower down this path when they want to work out the debt with a fair conclusion to the best of their ability? Isn’t something better than nothing?
Maybe, if anything remains in their 401k, it should not be demanded. Congress protected it, leave it alone! Maybe the additional lien on their home is overkill. There is no equity anyways, why the additional nail in the coffin? Maybe the bank should work with the borrower, not just to maximize the bank’s return but to also engage in an honorable workout, whatever that may look like. Something is better than nothing and an honorable workout works better than a bankruptcy.
Yes, I know what the paperwork says and I understand what a personal guaranty means. But the bank got into the deal with the borrower and if the business fails shouldn’t the bank have some responsibility for the losses as well? Shouldn’t there be some equitable sharing of the losses despite the one-sided paperwork that everyone signs? I think so. Why not a workout instead of a one-sided pursuit with no positive result?
