ALTERNATIVES TO BANKRUPTCY
Work Out - Bankruptcy Avoidance Strategy
Consumers who wish to avoid bankruptcy, but do not have enough income to qualify for a Debt Management Program, may wish to consider a Work Out. In a Work Out the law firm will seek a compromise from your lenders, and, if successful, you will settle your obligations by paying something less than the full amount due on the account. When successful, Work Outs permit a consumer to satisfy their creditors through a combination of debt restructuring, payment plans, and/or partial balance payments.
In some respects, Work Outs are an alternative to Chapter 13 Bankruptcy. When seeking concessions from their creditors, our clients supply disclosures and proof of financial hardship that are similar to the information given in a bankruptcy filing. However, there are some important differences between Work Out and Bankruptcy:
- Creditor involvement in Work Outs is strictly voluntary; their participation in Ch. 13 is enforced by the Bankruptcy Court
- Work Outs are directed to resolution of unsecured debt, only; Ch. 13 can sometimes help with both secured and unsecured debt
- Work Outs do not prevent collection activity or litigation to enforce claims; most collection and enforcement activities are stayed during a Ch. 13
- The parties to a Work Out (debtor and creditor) are free to enter into (as well as to reject) any mutually agreeable solution; Ch. 13 requires a Trustee to supervise and the Court to approve all such agreements.
Work Outs are best suited to consumers with serious financial hardship. It is an alternative for some consumers who wish to avoid bankruptcy, but it is not an alternative to Chapter 7. For the Work Out strategy to have a chance of success, the consumer must have sufficient income to pay a significant portion of their obligations.
Call 800-860-1004 to discuss settling your accounts in a Work Out.
