If you’re struggling under the weight of your debt, you may have heard of Debt Restructuring as a way to get some relief. You may have even heard that you can get some of your Debt forgiven through the Debt Restructuring process, allowing you to get a fresh start.
But what exactly is Debt Restructuring?
Debt Restructuring can take several different forms, but at its core it is simply the process of changing the terms of an existing loan, typically in order to make it easier for the Borrower to pay back some or all of the Debt.
A debt can be restructured to lower the interest rate, extend the term to maturity (consequently lowering the monthly payment), forgive some of the balance owed or defer a certain amount to the back of the loan with no payments, until sale, transfer or maturity. Basically change the terms and conditions of the loan.
Bankruptcy is one route to restructuring debt. Chapter 13 bankruptcy can be an attractive option because you know going in which debts will be discharged and which won’t, it provides protection from creditors while you make payments, and in the end it can offer a lot of relief by wiping the slate clean.
But bankruptcy isn’t the only option. You can also Restructure Debt by reaching out to lenders directly. If you can demonstrate financial difficulty, lenders may be willing to negotiate with you in order to recoup more of the loan balance than they would get if you default or go bankrupt. Restructuring your debt outside of bankruptcy can be a good idea if you have just a few creditors, but can be difficult if you have to negotiate separate deals with multiple lenders. You typically have to be seriously delinquent in order for lenders to negotiate with you, since they need to see that they’re at a real risk of losing money.
Before moving forward with any debt restructuring, it’s a good idea to evaluate your options and create a plan that puts your interests at the forefront. Refinancing, debt consolidation, stricter budgeting and selling some of your assets are all alternatives to debt restructuring that can make more sense in certain situations.
Two examples of situations in which restructuring your debt, particularly through bankruptcy, can be the right move, are as follows:
The first is if you’re approaching retirement age without any retirement savings and your monthly debt payments prohibit you from making any progress. In that situation, getting relief from your debt can allow you to direct that money toward retirement accounts instead.
The second scenario: If you have a number of debts that won’t be discharged in bankruptcy, such as recent taxes, student loans, child support or alimony, but your other debts are preventing you from paying them down. In that case, having your other debt discharged can make it easier to pay off those priority debts so you can get on with your life.
Whatever the particulars of your situation, consultation with a qualified bankruptcy attorney is a good idea. We see too many people struggle for too long and make bad decisions, either because they’re dealing with bad assumptions about bankruptcy or because of some kind of emotional resistance. Meeting with a bankruptcy lawyer doesn’t commit you to filing, but a good lawyer will help you evaluate your options and create a plan that works for you.
Benefits of Debt Restructuring:
While restructuring your debt is not a cure-all, there are some good reasons to consider it.
Here are some potential benefits:
Protection: One of the main benefits of chapter 13 bankruptcy is the protection you get from creditors. Filing a petition for chapter 13 grants an automatic stay against collection agencies and foreclosure, and all payments are made through a bankruptcy trustee, meaning you don’t have to have any contact with your creditors during the repayment period.
Payment Relief: You may be able to decrease your monthly payment, which can make it easier to stay current on your debt while still being able to afford necessary living expenses.
Forgiveness: You may be able to have some of your debt forgiven, either by settling with lenders on your own or by having some of your debt discharged through chapter 13. Chapter 13 is a good idea for people who have fallen behind on mortgages or car loans, as it allows for the curing of defaults without the threat of foreclosure or repossession.
Does Debt Restructuring Make Sense For You?
You have options, and you should consider all of them. But in the right situations, debt restructuring can be a lifesaver. With the right plan, you can reduce your monthly payment and potentially have some of your debt forgiven, allowing you to get a fresh start and make real progress toward the financial goals that are most important to you and obtain “financial peace of mind”.
