You Are Already In Default You Just Don’t Recognize It

The rule is simple: You must be in default to be considered for a debt workout with debt forgiveness as the result.

I speak with many small business owners who are so committed to “keeping their word” they do everything possible within their means to pay the bank’s debt service requirements for their loans. Thus when we speak, they are “current” albeit in a heap of trouble. What you really have in this scenario is massive insolvency and a totally upside down business only able to pay the monthly debt service because the small business owner is, in essence, self-liquidating.

The bank’s attitude is that as long as you can pay the monthly debt service, they are not very concerned with anything else and certainly are not interested in reducing the debt or even considering entering into a debt workout. Why should they when you are current? Understandable.

Typically in this situation, revenues have plummeted and debt service is no longer affordable. In fact, operational survival is in question. However the small business owner, committed to his word does everything he can to honor his monthly debt service commitment including forgoing his own paycheck and not paying his vendors or landlord on a timely basis. It’s called juggling. He may not even be paying his payroll taxes but his bank debt is current. This is ridiculous. This business is insolvent and the mere fact that all his liquid assets are being directed towards the debt service hardly makes him current. Rather, he is in massive default everywhere else and headed towards complete collapse.

Better the business owner should run the business more effectively, paying vendors, taking a paycheck and ceasing to pay the bank. Then, he can qualify to enter into a debt workout with debt forgiveness being the result. A business owner in this situation is essentially in default, he just isn’t willing to acknowledge it because he is too busy pretending otherwise and covering up the truth.