Answers To Your Questions About Debt Restructuring

Do you struggle with debt payments every month? Like many Americans, you likely have several different options for finding a solution. These can range from the most damaging, including simply walking away from debt, to the most helpful, including bankruptcy filing. But one financial tool that is often overlooked is debt restructuring.

What is debt restructuring? How can it help you? And how can you accomplish it? Here are a few answers.

What Is Debt Restructuring?

When a person or business can't afford the payments on a debt each month, they often see it as an all-or-nothing situation: either you pay the full payment or you don't pay anything at all. But restructuring your debt means working with the creditor to make new arrangements on the same contract, the goal of which is to turn it into a payment you can afford.

A common example of restructuring is a home loan modification. The debt isn't discharged. Instead, the capital owed may be reduced and the lender agrees to be satisfied with partial payment. Alternatively, the lender may agree to fewer fees, a longer term, or reduced interest rates to allow the borrower to make affordable payments while still paying off the capital.

What Are the Advantages of Debt Restructuring?

One of the best reasons to pursue debt restructuring is that it doesn't involve qualifying for new debt. Instead of replacing old debts with new ones, restructuring takes existing contracts and alters them in a way that makes paying them off more affordable. The lender may also be more motivated to participate if the alternative is receiving no payment.

Because it's a negotiation between the borrower and the lender, restructuring can be done relatively informally and quickly. You don't have to file legal protection or wait for any savings to build up. In addition, the borrower may ask for specific remedies based on their particular needs, giving each person more options.

What Are the Disadvantages of Debt Restructuring?

Of course, any means of debt management has its pitfalls. Lenders aren't obligated to offer any concessions toward restructuring, so you may have difficulty convincing them to participate. If the lender believes that they can get full payment in other ways, such as filing for a Chapter 7 or 13 bankruptcy, they may not be amenable to a reduction in what you owe.

Restructuring also requires good negotiation skills and a strong position of leverage. As mentioned, a lender is most motivated when this is the best option for their finances. The debtor may not know how to leverage their position or how to approach the subject of restructuring with a professional loan company.

Finally, if the entire debt isn't satisfied in full, the forgiven portion may be taxable. It may also show up on your credit history as a negative mark that lowers your credit score for a period. Effects like these are determined on a case-by-case basis based on the new agreement.

How Can You Be Successful at Restructuring?

Are you a good candidate for debt restructuring? Find out by analyzing your monthly budget and debts to identify specific adjustments that would make you able to consistently make monthly payments. Many candidates work with a professional to come up with an offer for lenders and the budget data to prove how this benefits them. You should also be a strong negotiator or able to hire someone to help.

Where Can You Learn More?

Want to know more about debt restructuring and how it could help you avoid bankruptcy, afford to keep your home or vehicle, or prevent creditor harassment? Start by meeting with Charles J Schneider PC. We will assess all your debt options and help you choose the one that benefits you the most. Call today to make an appointment.