Non Bankruptcy Workouts

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Non-bankruptcy workouts are simply alternatives to filing bankruptcy. Debtors who choose a non-bankruptcy workout do so voluntarily. Given the sweeping changes to the bankruptcy legislation that were passed by Congress in 2005, and which make it more difficult than ever for the average person to have the slate wiped clean through bankruptcy, non-bankruptcy debt management workouts or programs are trending upward. If you have thought that bankruptcy might provide the only way out of an overwhelming debt situation, you may want to look into a workout such as these.

Most bankruptcy workout plans involve a reduction of the debt owed. This type of non-bankruptcy workout is commonly known as a composition. A composition is when two or more creditors agree to take partial payment in order to completely satisfy a debt. The debtor will meet with his or her creditors and negotiate the possible terms for a debt reduction. After a repayment plan, which includes a reduction of the debt, has been decided upon, the debtor repays his or her debts under the terms of the agreement. This helps in many ways; both parties are able to resolve the debt problem, and the debtor will be able to do so without fearing the stigma that is sometimes attached to bankruptcy.

Another non-bankruptcy workout can involve an increase in the period of time for debt repayment. This type of non-bankruptcy workout is also known as an extension. The debtor will be granted more time to pay his or her debts to creditors. Often times, an extension on debt repayment is all a person needs to get financially secure and back on their feet.

On some occasions, the two types of non-bankruptcy workouts can be combined, thereby giving the debtor a longer time to repay a smaller amount of debt.

Non-bankruptcy workouts typically follow the formal requirements of a contract. These requirements are not the same in every state, but the principles do tend to be consistent. Formal requirements of a contract require an offer, an acceptance of the offer, and consideration. Consideration is an exchange between two or more parties in which there is some form of value. In order for the workout to be legal, there is a specific process which, although it may vary somewhat from state to state, conforms to a similar format.

There are many advantages to non-bankruptcy workouts. A non-bankruptcy workout allows the debtor to avoid many expenses, including attorney's fees, petition filing fees, administrative fees, and others. Also, debtors can avoid any stigma or negative consequences, such as a decline of one\'s credit score, which would necessarily occur as a result of the bankruptcy process. A non-bankruptcy workout is ideal for temporary financial difficulties as well. The debtor's credit may remain substantially better after a non-bankruptcy workout than after the bankruptcy process.

There are many disadvantages to non-bankruptcy workouts as well. Creditors do not have to accept the terms that are presented to them regarding debts that they are owed. Creditors who do not agree to the terms are not affected by the agreement, and therefore can attempt to recover bad debts in full. A creditor that does not accept a debtor's contract will forgo the partial payment, no matter the amount, that is being offered from the debtor. After a non-bankruptcy workout has been planned by the creditor and debtor, the decision to agree upon the terms are totally left to the creditor.

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