Debt restructuring is a process that allows a debtor (an individual or a business) to modify the terms of their existing debt obligations in order to make them more manageable and sustainable. The goal of debt restructuring is to help the debtor avoid default and bankruptcy while also enabling creditors to recover as much of their debt as possible.
Debt restructuring can involve various types of modifications to the existing debt, including:
- Changing the payment schedule – this can involve extending the repayment period, reducing the amount of the payments, or both.
- Reducing the interest rate – this can help reduce the overall amount owed and make the payments more affordable.
- Converting debt into equity – this is a common strategy for businesses and involves converting debt into ownership shares in the company.
- Forgiving a portion of the debt – this can involve reducing the principal amount owed, or forgiving interest or fees.
Debt restructuring can be initiated by the debtor, the creditor, or both parties in agreement. It may involve negotiating directly with creditors or hiring a professional debt restructuring firm to act as an intermediary. Debt restructuring can help individuals and businesses regain financial stability and avoid bankruptcy, while also allowing creditors to recover as much of their debt as possible.