Debt Relief

Case Study: A Filing Or A Workout Plan

Illustrative examples. Past results do not predict future outcomes.

Client: The owner of a small catering company (details changed)

Counsel: Sterling Amos Law Group

Matter: Consumer and small business debt

Summary: This illustrative matter follows an owner who had personally guaranteed business debts after a slow year. The firm compared a bankruptcy filing with an out-of-court payment plan before any step was taken. Names, figures and some facts are changed, and the example is shared only to show how options are compared.

Background: After losing two large corporate accounts, the client fell behind on an equipment loan and a line of credit, both signed with personal guarantees. Collection calls had started at home. The owner wanted to keep the company running for its six employees if that was at all possible.

Obstacles:

1. Personal guarantees: Business debts reached the family’s savings. Savings meant for college were within reach of two lenders.
2. Mixed accounts: Personal and business spending shared one card. Separating them took three months of bank statements.
3. Seasonal income: Cash flow swung sharply by month. Winter months often brought in half the revenue of spring.
4. Pressure: Creditors were calling several times a week. The owner had stopped opening mail from the lenders.

Our Approach:

1. Full inventory: We listed every debt, guarantee and asset in one table. The table showed which debts were secured and which were not. It listed balances, rates, due dates and guarantors.
2. Two paths: We modelled a filing and a negotiated plan side by side. Each path came with a monthly budget and a likely timeline. Neither path was recommended until both were on paper.
3. Creditor contact: All calls were routed through the firm. A single letter asked every creditor to write to the firm instead. Calls to the family home stopped within the week.
4. Cash plan: A twelve-month budget was built with the client’s bookkeeper. Weekly check-ins kept the budget honest during slow months. The bookkeeper updated it every Friday afternoon.

How It Unfolded:

• Lender meetings: Presented the budget to both lenders. Both lenders received the same written budget in advance.
• Equipment return: Arranged return of unused equipment against the loan. Returning idle equipment reduced the loan balance quickly.
• Revised terms: Negotiated a longer payment schedule on the credit line. Payments were set lower in winter and higher in spring.

Resolution:

1. Workout agreement: The client chose the payment plan over a filing after reviewing both budgets with his bookkeeper. The owner signed only after his bookkeeper reviewed it.
2. Guarantee terms: The lender agreed to a written standstill on the guarantee while payments stay current under the plan. The standstill is reviewed every six months.
3. Records: Business and personal accounts were separated, with a simple monthly check-in to keep them that way. The business now has its own card and bank account.

What Changed:

• Quiet phones: Collection calls stopped once counsel was involved. The family could sleep through the night again.
• A plan: The family could see a clear end date. The final payment date was marked on the kitchen calendar.
• Options kept: A filing remains available if the plan fails. The plan was built so that a filing could still follow if needed.

Takeaway: A filing is one tool among several. Comparing paths on paper first helps an owner choose with less fear.