The debt restructuring process is one that is credited to sparing individuals, companies and even countries from defaulting on their current debts or having to file for bankruptcy.
It can turn around one’s financial state dramatically and allow them the opportunity to make their debts more manageable.
There are many crucial steps involved in the legal process of debt restructuring. Here is an overview of them.
What is Debt Restructuring?
Debt restructuring is a process utilized by individuals or companies involving renegotiating the terms of existing debt agreements to make them more manageable for the debtor to pay off.
For example, if an individual is unable to continue making payments for a $300,000 mortgage may reach an agreement with a lending institution to reduce the mortgage to 75% of the total mortgage.
In return, the lender may receive 40% of the home sale proceeds when it is sold by the mortgagor.
When an individual or company enters the debt restructuring process, the debtor needs to undergo a financial assessment of their income, expenses, assets and liabilities. This helps determine the extent of the severity of the financial distress and the feasibility of restructuring.
Developing a Plan
It is essential for debtors to develop a detailed plan for how they will handle their debts moving forward. They should seek help from financial advisors and bankruptcy attorneys to compose a plan for negotiating with creditors, outline how the debt will be modified, managed and repaid.
Full disclosure of all financial information is required. Concealment of any crucial financial information can result in the dismissal of the debt restructuring plan.
Debtors need to obtain creditor approval before moving forward with the restructuring plan.
Creditors have the legal right to object to a proposed plan if they feel that it is unfeasible.
After working out all of the details of how the debts will be restructured and extended payment terms, the court will approve and oversee the debtor’s promises to make modified payments on time to creditors that were outlined in the plan.
Discharge of Debts
Upon completion of the debt restructuring plan and making modified payments to creditors on time, the court will discharge any remaining debts.
However, the debtor must follow and comply with any financial obligations post debt restructuring and focus on rebuilding their credit and financial state.
The legal process of debt restructuring provides those on the brink of financial ruin with a fresh start and the opportunity to dig themselves out of bad financial decisions that landed them in debt.
Adherence to all legal requirements involved in the process of debt restructuring will yield a successful outcome for debtors.
For more information and guidance through the process of debt restructuring, contact our experts at Todd Cushner & Associates today.
