The next step business owners typically try is a workout program bro kered by a third party. There are very few groups that do this type of activity for the business debts of very small businesses. There is really not much need since trade creditors tend to deal with you in a logical and businesslike manner.
Alternatives to Bankrupting Your Business or Yourself 55
On the other hand, there is a great need for such third parties when it comes to dealing with personal debt, as collectors on consumer accounts are very aggressive and hard to work with.
There are basically two types of intermediaries to use: Consumer Credit Counseling (CCC) and the nonprofit companies that one often sees and hears advertised on television or the radio.
Consumer Credit Counseling
CCC is a nonprofit organization, often affiliated with the United Way, that is supported in part by the credit industry. Typically you go into its local office and meet face-to-face with a counselor. The charge to you is very low, and much of the financial support for CCC comes from the credit industry and the United Way. The value is high because the counselor, at your individual session, will go over your budget and analyze your debt status.
One great value of CCC is that it will help you look at your person al budget and see what can be changed. CCC will normally set you up on a repayment plan that lasts about three to five years, and you will pay back all the debt plus interest. Often a notation that you were in a CCC program will go on your credit report, but this is probably less damaging to your credit than many late payments, foreclosures, repossessions, or declaring bankruptcy.
For a partial list of local CCC offices and contact information, look at Appendix C.
Other Workout Programs
There are a growing number of other third-party intermediaries. They often go by the names of debt counselors or debt consolidation agen cies. Their infomer- cials and ads are common on television and radio. They are typically labeled in their advertisements as nonprofit companies. However, one must understand
56 Bankruptcy for Small Business
what is meant by nonprofit. The term non profit does not mean they do not make money. They often make very good money and their employees can earn a high salary. The term nonprofit means that no profits are paid out (it is all spent on operating costs and salaries), or there are no shareholders who are entitled to profits. These companies typically make their money by charging you a han dling fee. Or, they obtain an agreement with the creditor to let them have part of the money collected in exchange for collecting monthly payments from you and sending them to the creditors.
They say they will work out a deal with your creditors where you make one payment to them as debt adjustor and they will in turn pay your creditors. Unlike lawyers or the Credit Bureau, many of these operators are not licensed or regu- lated, so there are no limits on what they can do.
A few merely take your money and do not send it to anyone, so after months of faithfully making your payments you are out your money and still have the debts.
Many are able to make arrangements with some, but not all, of your creditors.
This means some creditors will still be calling you. Others may take your money and make min imum payments to your creditors—after taking a cut for themselves.
At the rate they make payments for you, it could be many years before your debts are paid off.
Warning
Be very careful of anyone who does not have a local office you can go to. Go to that office before you send them any of your money. Find out if it is regulated by your state or a United Way agency. If not, be careful dealing with that company.
If you use such a service, you should track what is happening to your loans very carefully. All too often, people think things are going fine. They are Alternatives to Bankrupting Your Business or Yourself 57
making their monthly payments and the phone calls from creditors have largely stopped. It is only after several months that they learn their loan balances have not gone down. Ask specifi cally how long the payments will take to pay off your debt, because they are charging you each month and the organization may have an incentive to keep you in the plan as long as possible.
58 Bankruptcy for Small Business
Lawyers are often given a bad reputation. Many times, to an outsider, it seems that what the lawyers are doing are routine actions that could be done by anyone with a little common sense. At other times, it seems that the lawyers are making the whole process unduly complicated. Like many stereotypes, there are some elements of truth in these claims—and much that is not true.
There is an old story about a factory owner whose key machine broke down and the whole plant could not run. The company repairperson could not fix the problem, and at last, in desperation, the owner called in an outside mechanic. The mechanic said it would cost five hundred dollars to do a diag- nostic and fix the machine, and the owner desperately agreed. The mechanic looked at the machine a few minutes and then opened the machine and replaced a belt and toggle switch. He then presented his bill. The owner was indignant, saying, “Five hundred dollars for those simple steps is outra- geous. I could have done that.” The mechanic said, “You are not paying for the replacement work, but for my knowing which belt and switch to replace.
Besides, your factory is up and running again with a minimum of loss, so you have saved thousands of dollars.”
l awyers , B Usiness C reditors ,
and t Heir f UnCtions 8
60 Bankruptcy for Small Business
That is what you are paying for when you hire a lawyer to work on your business financial issues. You are not paying him or her just to fill out forms, but also for the knowledge of what will and will not work in a complicated system.
The bankruptcy system is complicated partly because the laws often use compro- mising language that no one fully realized would produce the results it did. This wording is then thought about by smart people who examine every word and its relationship to the other words.
The lawyers who do bankruptcy cases every day live in the world of this bank- ruptcy speak—they know what reasonable means in their courts and just how fair market value is calculated. Much of the paperwork is routine. But often, business cases are not simple, and this is why lawyers have a larger place in business bank ruptcies. You, the client and consumer, also have a place, and you can benefit greatly by understanding in a general way what is going on.
The lawyer may know the law and the local court customs, but you know your personal situation far better than the lawyer ever will. The lawyer uses ques- tions and forms to try to collect all the pertinent facts, but these systems have flaws. He or she knows exactly what he or she means when asking you how many mortgages you have against your home. But you must know that a line of credit secured by your house is considered a mortgage to answer this question correctly.
It is suggested that when you start to have cash flow problems you see a lawyer fairly early in the process. If you have read this book carefully, you will know some of the major traps to avoid as you work to save your business and your personal finances. There may be other traps that are specific to your situation that a lawyer can help you with.
Lawyers, Business Creditors, and Their Functions 61