2 Types In Debt Restructuring You Should Know
Debt restructuring is done only based on the calculation of the reallocation of financial resources or the changes that need to be done in a credit scheme. This step is part of an agreement between the debtor and creditor to resolve problems occurred between them. Basically this step can be divided into two types that will be explained as follows:
- General Restructuring
General restructuring of the extension of the loan period can be performed in combination with a reduction in interest rates. This step is done with the goal of easing the burden of the debtor to pay the debt. General restructuring is done to give time to the debtor to recover from the economic downturn. The economic downturn is the reason why a debtor is unable to pay the debt.
- Troubled Restructuring
Troubled restructuring done in a situation where a creditor caused damage to the debtor as a result of the steps that have been made, such as minimization of the accrued interest, the game on the value of the collateral that has been agreed upon, and improper conversion steps on the equity aspects.
Steps in Debt Restructuring
- The creditor is the party that served to formulate the steps that must be done in a debt restructuring process. The measures taken should include the time that is expected to be able to meet the needs of the debtor to recover from the economic downturn. Loan payment terms and financial performance of the debtor are two main aspects that should be considered before designing a debt restructuring plan.
- The decision taken by the two sides should consider the reputation held by the debtor, whether they have invested in the company, as well as related https://www.nationaldebtrelief.com/ condition, such as ownership and status of the debtor within a company.
- It is recommended to ask the assistance of a third party in the event of a conflict between the two sides, the debtor and the creditor. In case the debtor is a subsidiary of the lender, the assistance of a third party might not necessary because they can perform internal mediation.
- Projected cash flow is very necessary in a debt restructuring process. Estimated cash flows is uncertain is to be avoided from the outset.
- Consideration of the financial situation which is owned by the debtor must be an important aspect in planning the restructuring of debt. Financial situation is affecting financial management, and financial management is affecting debt restructuring.
Consulting services can help you to decide the steps to be taken in a debt restructuring plan. Sometimes there are some difficulties experienced by both creditors and debtors because they did not master all the rules related to debt restructuring. A compromise based on the trust in each other is the only core of the settlement of a debt problem. If ignored then any debt restructuring plan that has been created will not run smoothly.