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Bankruptcy workout plans offer alternatives for businesses

Non-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 compositionA composition is a type of non-bankruptcy workout that involves reduction of the debt owed. In this plan, two or more creditors agree to take partial payment that settles the debt. Possible terms are negotiated between the business and the creditors. The agreed repayment plan usually includes a reduction of the debt. The business continues to pay and follows the guidelines of the agreement until the debt is paid off, all while avoiding bankruptcy.
  • 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 back the creditors. Many individuals and businesses have found success with this plan. While the debt isn’t reduced, the extra time helps them gain financial security.

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.

For businesses considering bankruptcy, non-bankruptcy workouts can be beneficial alternatives. Before signing any contracts or making major financial decisions, it is best to seek legal counsel.

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