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Can a formal non-bankruptcy workout help me?

Filing for bankruptcy may be the preferred option for some residents in Tennessee who are simply drowning in insurmountable debt and have no other way out. However, other debtors in Tennessee facing a significant amount of debt that they are having trouble keeping up with may have another option, a non-bankruptcy workout.

A workout is a formal modification of a person's debts that has been mutually negotiated between the debtor and his or her creditors. Workouts are referred to as either extensions or compositions. Extensions are contracts between a person and at least two, if not more, of his or her creditors, wherein the creditors agree to let the person have more time to pay off his or her debts. Compositions are contracts between a person and at least two of his or her creditors, wherein the creditors will allow the person to make only a partial payment on his or her debts to satisfy them. Sometimes a workout is both an extension and a composition.

There are certain advantages to entering into a workout. Debtors can absolve at least some, if not all, of their debts. Moreover, a person can still file for bankruptcy in the future, even if they have discharged debts via a workout in the past. Most of all, workouts are voluntary both for the debtor and the creditors.

However, there are some disadvantages to entering into a workout. First of all, creditors are under no obligation to enter into one, meaning the debtor is still obligated for the full amount of his or her debts and the creditor can continue to engage in debt collection activities. Moreover, creditors could one day decide not to honor the workout, leaving debtors in an untenable financial situation. For these reasons, while workouts may be the right means of debt relief for some, for others, filing for bankruptcy is the preferred option.

Source: FindLaw, "Non-Bankruptcy Workouts," accessed Sept. 17, 2016

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Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

Phone: 423-624-4002
Toll Free: 800-257-7594
Fax: 423-624-0509
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