We at Bennett Guthrie PLLC have extensive experience in bankruptcy law, and we have helped countless clients deal with serious debts. If you are in difficult financial circumstances and are at risk of defaulting on your debts, please come to us for help. In some cases, we may be able to help you work out a solution via debt restructuring instead of by declaring bankruptcy.
In this article, we’ll go over a few key things you should know about debt restructuring.
- How It Works – Declaring bankruptcy allows you to discharge some or all of your debt and walk away. Your credit score will take a hit in the process, but in many cases, bankruptcy is still the best or only option. In contrast, debt restructuring involves negotiating with your lenders to work out a new arrangement, which typically involves lowering your interest rates, extending your due dates, or both.
- Business Debt Restructuring – Another key thing to know about debt restructuring is that it can be used for both businesses and individuals (which includes families, too). There are many ways to restructure a business’ debts, but one of the most common is what’s known as a debt-for-equity swap. In this arrangement, your lender agrees to cancel some or all of your debt in exchange for equity in your business. To put it in layman’s terms, you can trade partial ownership of your business to the lender in return for getting your debt cancelled.
- Individual Debt Restructuring – Debt restructuring for individuals can also involve similar equity-debt swaps. In this case, you would exchange equity in your home in exchange for the cancellation of part or all of your personal debt. For example, if you are struggling to keep up with your mortgage payments, you could work out a debt restructuring deal in which the mortgage lender lowers the total amount you have to pay back in return for taking a percentage of the total sale price when you eventually sell the property.