It is possible to negotiate changes with regard to the repayment terms of debts a consumer owes, without using a bankruptcy option. This is called a non-bankruptcy workout. It is referred to a "workout" because all parties involved must agree to work out such a deal. A solution like this avoids the need for filing for bankruptcy and placing any property of the debtor at risk.

The typical workout is where lump sum settlements are negotiated with each creditor for less than the full amount of the debt due. Upon payment of the agreed upon amount the debt is deemed fully satisfied and the consumer is no longer obligated to pay any more on that particular debt.

In other cases, the consumer is simply looking for more time to pay a debt and so modification to the loan terms is negotiated which extends the repaying period or reduced interest for a certain period of time.

Sometimes, not all creditors agree to be part of the workout and participate in the negotiations. In such a case, the debts not included in the workout remain untouched. In other words, the consumer would still owe those debts at the original contract terms and those creditors can resume collection efforts.

In all cases, there are written agreements which state the terms of the workout and these agreements can be enforced just like a contract. Many creditors agree to bring the consumer’s credit report current and to list the debt as "settled for less" which can help improve the person’s credit score since the default notation is so damaging.

There are pros and cons to everything and some workouts bring tax consequences to the consumer. For example, if a creditor agrees to accept less than the full amount due, the amount forgiven may become taxable income at the end of the year. The creditor sends out a tax statement indicating the amount of forgiven debt and your tax preparer will have to assist you with the determination as to whether this will be taxable in your situation.

There are a variety of reasons a person would do a workout. Sometimes, that person simply does not qualify for bankruptcy. Maybe the person qualifies to file but does not wish to do so and by entering into a voluntary workout agreement with creditors, the debtor avoids the stigma that attaches to bankruptcy while achieving similar results - reduction or elimination of debt. Also, a workout does not affect the consumer's right to file a future bankruptcy, whereas certain types of bankruptcy discharges prevent filing for bankruptcy again for a significant amount of time. The main advantage, however, is that the consumer’s assets are protected and the workout avoids Court scrutiny.

It should be noted, however, that very often a consumer is afforded the best possible relief by filing for bankruptcy and attempts to negotiate with creditors just prolong the inevitable. If you are considering bankruptcy or non-bankruptcy workout, the Law Office of Susan E. Rizos can help you. First and foremost, attorney Susan E. Rizos, can analyze your financial situation and advise you of all of your options bankruptcy and non-bankruptcy related. She can assist you with deciding which option is best for you and then work for you to implement your chosen solution.

If you are experiencing financial difficulties and have questions about your options, contact the Law Office of Susan E. Rizos and set up a consultation now.