What is the goal of a "workout"?

The goal of a workout is to establish a process that resolves your default by a method other than bankruptcy. A workout can either be consensual or nonconsensual. A consensual workout can include a loan modification, refinance, short sale or deed-in-lieu. A nonconsenual workout includes foreclosure and legal action against a homeowner.

Obviously the most favorable workout for a homeowner is consensual. If you qualify, a reduction in mortgage payments through a HAMP loan modification is the probably the first workout to consider.

The goal of a workout is to avoid bankruptcy. The bank or lender certainly wants to avoid a homeowner filing bankruptcy--but it may be the homeowner's best choice. Bankruptcy offers a chance to get current on your house payments and to stop the foreclosure process. For example, if your are in arrears $15,000 on your mortgage payments and the bank is foreclosing, bankruptcy will stop the foreclosure and will allow you to pay the $15,000 in arrearages over 3 to 5 years.

If you are permanently out of work, the lender considers the default "noncurable" and will go ahead and accelerate the note and demand full repayment.