Debt restructuring – debt cancellation or debt consolidation, which consists in extending the repayment period, suspension of repayment of installments for a specified period of time, or the granting of a completely new loan that will allow to repay the existing debt. The purpose of debt restructuring is the final return of the debt.
Lack of repayment of the debt incurred in time leads to entering the borrower on the list of unreliable and unreliable contractors, which results in the creation of a negative credit history. As a result, it leads to problems with obtaining a loan or loan in the future. Thanks to the debt restructuring, the borrower will avoid these consequences if they encounter liquidity problems.
What is restructuring?
Debt restructuring is aimed at dealing with debt obligations when the borrower is unable to pay them back within the deadline set for that date. The purpose of the restructuring is to eliminate bad debts and reduce debt.
Restructuring exists in accordance with the provisions of the Civil Code, which provides that the debtor has the right to negotiate with the creditor new payment dates when the previous ones are impossible to implement. This involves extending the repayment period. The introduction of changes in the current terms of debt repayment allows us to adjust to the current financial situation of the client and, as a result, lead to debt repayment without the need to run debt collection processes.
Debt restructuring methods
Debt restructuring may involve several jointly or independently taken actions:
- extension of the debt repayment period,
- suspension of installments,
- change in the interest rate used to calculate interest on liabilities,
- currency conversion of debt (in terms of currency debts),
- granting a new loan,
- debt consolidation,
- change of the security method,
- debt reduction.
Advantages of the solution
The debtor may apply for restructuring when its financial liquidity is at risk. Lack of contact with the creditor may result in the initiation of debt collection proceedings. placing the debtor’s data in the debtors’ registers. Debt restructuring is very beneficial for both parties. It helps to recover the debt owed to the creditor and repay the debt owed by the debtor.