Dear Banker, Default Is Not A Breach Of Honor

Dear Banker,

You demand that borrowers act honorably, you demand they pay their monthly debt service because they gave their word. I say there could be no more honorable a group of people than the small business owners we speak with who, while in default, abhor the concept of bankruptcy or a workout and will work forever to pay off a debt without benefit to themselves out of a sense of honor to the bank and their agreement to pay. However, sometimes, they simply cannot do it. This is not dishonorable.

Bankers frequently push defaulting borrowers to honor their word as if they haven’t tried, as if honor has anything to do with their default. Defaulting borrowers can do no more and all they ask for is an opportunity to pay the loan off, with affordable payments, which they can quite possibly do. Still, it’s a request almost universally rejected.

Yes, I understand they lack the appropriate qualifications and resources and credit worthiness and must comply with what they agreed to, and I further understand that you may be willing to modify the loan but if they still can’t afford the payments, foreclosure and liquidation is the only answer. Isn’t there some middle ground that would allow them to pay off the loan to the best of their ability, turning their business around and making it possible for them to pay more as time goes on? Must it be all or nothing NOW? Is that the only answer, pay as agreed or we will foreclose and liquidate? Yes, a modification is possible but this is never enough to change the results.

When breach is a direct function of the depressed economy and the borrower in default has a plan to create revenue, but not enough to sustain currently required payments, is this a breach of honor?

It would seem that paying something is the honorable thing to do and is a best-case outcome for the bank. It would seem to me that the defaulting borrowers are acting with incredible honor, as in many cases they have gone without a paycheck for as long as they were in trouble, have already used their savings and have unloaded their 401k, maxed out their credit cards and their spouse’s. There is nothing left and yet they work 80-hour weeks, desperately trying to survive and turn their business around so they may honor their loans and stay afloat. This is honorable. You hurt the borrower so deeply when you demand they honor their word and pay, as if they have a hidden treasure chest they can tap and they lack adequate honor to do this. How silly.

Your borrowers are people of their word. You determined that when you underwrote their loans. They have, for the most part, acted impeccably, sacrificing themselves beyond reason to honor their word already. What more do you expect? Would filing for bankruptcy be a more honorable act?

Work with them, they will do their best. They are honorable and it gets you nowhere to claim otherwise.