A Workout is an Honorable, Appropriate, Responsible Solution to Loan Default

Contrary to what bankers would have us believe, repayment of debt is not a moral or ethical issue, it is a business contract and must be evaluated and controlled by business principles, not ethical considerations. The only reason we are even having this discussion is because the banks-at-large discovered that if they make this issue a good person/bad person issue, they will collect far more effectively as no one wants to be deemed a "bad person" for not paying his debts.

Congress made this point quite clearly when they devised the bankruptcy code (Chapter 11), giving borrowers a clear path to remove debt legally and stating clearly that they valued the continuation of business over the payment of debt.

I suggest, however, that the most honorable, responsible and appropriate path for a defaulted borrower to take is the workout resolution. This is a business evaluation---not forced on either party---and agreed to by both parties because it is the right thing to do and in everyone's best interest. Why else would the banks agree to these conclusions? It yields the highest return at the lowest cost and reflects the best the borrower can do. That's reasonable, fair, appropriate and successful for all involved.

In fact, given the terms and conditions of most secured loans, when the borrower goes upside down and begins losing money and is unable to do a debt service (and thus the loan becomes unsecured because the assets are worth far less than the loan) then, I believe it is an absolute responsibility to work out the debt for the benefit of the bank and reduce the payoff and losses as much as possible. This is responsible and appropriate action and behavior.

The loss must be shared by parties on both sides of the deal; both the bank and the borrower entered into it together, taking the associated risk. When it breaks down they must both work out the result as equitably as possible.

This is what a workout does. It is not a moral or ethical issue, but is a business matter to be handled with appropriate business protocol.