Bankruptcy workout plans offer alternatives for businesses
As a business owner, you probably work with other businesses on a daily basis. Your company provides valuable services to the community, consumers and companies. In return, you expect to be compensated. Unfortunately, not all businesses fulfill the financial agreements. Despite efforts to contact the business and receive payment, they ignore your attempts. This denial could be the result of the other business facing financial hardships.
While it is frustrating to not receive timely payments, there are options for you and the other business to discuss if an upfront payment is not possible. Bankruptcy workout programs are on the rise. As a simple alternative to filing bankruptcy, many businesses are using these plans for debt repayment. There are two plans that are compatible with a variety of business situations, which include:
A composition
A composition is a type of non-bankruptcy workout that involves reduction of the debt owed. In this plan, you and other creditors can agree to take partial payment that settles the debt. Possible terms are negotiated between the debtor and creditors. The agreed repayment plan usually includes a reduction of the debt. The business that owes a debt continues to pay and follows the guidelines of the agreement until the debt is paid off, all while avoiding bankruptcy and other legal actions.
An extension
Another non-bankruptcy workout is known as an extension. This involves a longer period to repay the full amount of debt. The business is, therefore, granted more time to pay your business back. Many individuals and businesses have found success with this plan. While the debt isn’t reduced, the extra time helps their business gain financial security and your business is compensated in the process.
In some cases, businesses benefit from a combination of the two plans. The extra time gives them a chance to get back on their feet, while a smaller debt makes payments more manageable.
Contract requirements
Every state follows a set of requirements for non-bankruptcy workouts. The general process includes an offer, an acceptance of the offer, and consideration. Consideration means two or more parties find value in the contract. Though the guidelines vary state to state, the outlines are comparable. Both composition and extension are subject to the same laws and governed by a contract.
Bankruptcy workouts can be beneficial alternatives for business owners who are willing to compromise and come to an agreement with other businesses. Before signing any contracts or making major financial decisions, it is best to seek legal counsel.
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