Bankruptcy Workouts and Restructuring in Orange County
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Bankruptcy Workout Attorney in Orange County
With the current environment of America’s bankruptcy statutes, non-judicial debt relief solutions have gained rapid popularity. If you are considering a bankruptcy filing as a debt relief solution a workout contract might be a viable alternative that offers benefits that would not be otherwise available in your situation. Our Orange County bankruptcy attorneys have considerable experience helping clients with bankruptcy workouts.
Marshack Hays Wood has been successful in structuring out-of-court workouts for retail stores and service industries. We recently completed a workout with employees who filed a class action wage claim proceeding. In each instance, the businesses remained open, employees kept their jobs, and creditors were paid a discounted amount over time. If you’re in need of a skilled team that handles filings under the Bankruptcy Code and out-of-court workouts, Marshack Hays Wood is here for you. To schedule a consultation with one of our attorneys, please call 949-333-7777.
What Is a Bankruptcy Workout?
Non-bankruptcy workouts are an alternative to a bankruptcy filing where a debtor and creditors reach an agreement between themselves for the payment of the debts. In 2005, Congress passed far-reaching changes in America’s bankruptcy statutes that resulted in it being much more difficult for a debtor to successfully file for bankruptcy. The increasing popularity of non-judicial solutions has been the result. Workouts are typically far simpler than bankruptcy filing and can often be accomplished more quickly. Workouts are essentially contracts, following the principles of contract laws. They are voluntary agreements that the parties enter into, and because of this, they can be even broader than bankruptcy protection.
However, this can also be an issue during negotiations. Since all parties have to agree to the terms, any given creditor can choose not to participate or leave the negotiations at any time prior to signing. They also have the right to continue to pursue recovery through debtor-creditor rules instead. In a bankruptcy proceeding, the bankruptcy court has the ability to bind all the debtor’s creditors to an agreement. Workouts generally will impact a debtor’s credit much less than a bankruptcy filing and are often cheaper because they avoid many of the fees associated with a bankruptcy proceeding.
When considering a workout, timing can be important. While it is always possible to attempt negotiations with creditors, choosing to do so before defaults have occurred provides a debtor with a stronger position to negotiate from. This will result in a more advantageous eventual outcome. Because of this, it is in a debtor’s best financial interests to discuss the possibility of a workout with an attorney at the earliest possible opportunity.
What Is a Workout Restructuring?
Corporate workouts are ways in which debtors can restructure the terms of their debt contracts with their secured creditors and unsecured creditors. These are generally done when companies want to avoid payment and covenant defaults. The other main reason is that companies often want to avoid public bankruptcy proceedings in state and federal courts.
What Is the Difference Between a Private Workout and Bankruptcy?
Workout negotiations are an increasingly popular option for debtors and creditors to restructure their debt agreements while avoiding the need to go to bankruptcy court. While a bankruptcy case may be preferable for many people, certain individuals and companies may prefer to stay out of the public eye. Whether this is to protect their business relationships or for another reason, both bankruptcy and workouts have their differences.
Out of Court Workout vs Bankruptcy
Below, we list some of the most common differences between creditor workouts and bankruptcy:
- Overall cost: If cost is a concern, workouts are generally less expensive than a bankruptcy case. Part of the reason for this is the cost-effective manner in which workouts are done. They are faster than bankruptcy filings and involve far fewer legal professionals. Additionally, bankruptcy requires debtors to pay filing fees (unless they are granted a fee waiver). They may even have to pay fees associated with the creditors’ committees.
- Time: Because workouts generally do not involve every single creditor that a company or individual has, these cases are often completed much faster than bankruptcy. Workouts involve a debtor’s major creditors, and they are not bound by the legal proceedings of the Bankruptcy Code.
- Litigation: Filing for bankruptcy triggers what is known as the automatic stay. The automatic stay protects debtors from eviction proceedings, foreclosures, wage garnishments, and any other ongoing litigation. Workouts, however, offer no such legal protections unless the parties involved negotiate forbearance agreements.
- Disruptions: It is important to maintain the daily operations of a company. Filing for bankruptcy is a public action that may cause confusion among customers, employees, and even creditors. Workouts are private discussions between the company and its creditors, which means they shouldn’t affect a company’s operations.
- Equity: It is rare for a company to keep any existing equity unless it meets very strict requirements. However, in a workout, the company is much more likely to retain its existing equity.
- Requirements: Once signed and agreed upon, a workout can only bind the parties involved to the workout specifically. Bankruptcy filings bind all of a debtor’s creditors to the liquidation or reorganization plan.
Types of Bankruptcy Workouts
Workouts generally fall into two categories. These categories are composition and extension workouts. Workouts will also sometimes include both categories as the parties may deem necessary and appropriate. Since workouts are actually contracts, there is a lot of leeway for negotiating exact terms. Therefore, specifics will depend on the specific situation and the parties involved.
Composition Workouts
Compositions consist of a contract between a debtor and several creditors wherein the creditors agree to some degree of partial payment to settle their claims.
Extension Workouts
Extensions consist of a contract between a debtor and several creditors wherein the creditors agree to extend the time the debtor has to pay the debts owed.
Do I Need an Attorney for Bankruptcy Workouts and Restructuring?
Although you are not required to have an attorney on your side for out-of-court workouts, we strongly recommend working with an interdisciplinary team of business, bankruptcy, and commercial litigation attorneys. If you are unsure of whether or not a workout is right for you, working with an attorney can ensure that you avoid making any costly mistakes. We will advise you of the pros and cons of workouts compared with bankruptcy in your specific situation. At Marshack Hays Wood, we also have experience representing creditor rights and debtors, meaning we fully understand what it takes to achieve a successful workout.
Contact an Orange County Bankruptcy and Business Litigation Lawyer
At Marshack Hays Wood, our attorneys have decades of experience handling a number of business and bankruptcy litigation cases. Some examples of issues that we handle include creditors’ rights litigation, Chapter 11, 7, 13, and 9 bankruptcy cases, insolvency, restructuring, and reorganization. Our lawyers will help you stand up to the teams of lawyers that other companies and financial institutions will have at their disposal. To schedule a consultation with one of our attorneys, please call our office at 949-333-7777 today.
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We see the big picture! The attorneys at Marshack Hays Wood are well-versed in protecting creditors and their rights both before and after a bankruptcy case is filed.
