Filing for bankruptcy is not always the right path to eliminate financial distress. Whether because a potential Debtor does not meet the requirements to file for bankruptcy, or is adverse to filing for bankruptcy because of some of the negative repercussions of a bankruptcy, or some other reason, sometimes a person deep in debt will choose restructuring over bankruptcy.

Just as for a business, restructuring for an individual involves talking to creditors and working out new payment terms.  Sometimes it involves refinancing altogether; sometimes it merely involves arranging a payment schedule.

If you’re experiencing prolonged financial distress, attorneys at JRFPC may advise against filing for bankruptcy and instead suggest debt restructuring. We believe that every individual’s financial situation is unique, and so we will evaluate your situation to determine if debt restructuring is the best option for you.

What is Individual Debt Restructuring?

Individual debt restructuring is an out-of-court debt relief option that helps individuals pay off their existing loans or get rid of credit card debt without affecting their credit rating. As the name suggests, debt restructuring involves sitting down with the creditor and restructuring the loan debt in such a way that it’s easier and convenient for you to repay.

This may involve reducing the number of monthly payments, reducing the principal amount or reducing the interest amount to be paid. In many cases, the creditor ends up receiving a lower amount after full loan repayment.

Restructuring an individual’s debts can present pitfalls for the unwary or those who do not seek legal counsel.  The wrong agreement can actually increase a borrower’s overall debt total even if it decreases monthly payments, for example.

A debt restructuring attorney can represent a borrower or a creditor.

When a debt restructuring attorney is representing a borrower, the attorney’s main aim is to sit down with the lender to negotiate debt terms that align with the borrower’s financial capability. Although finding a solution that fits both parties is a challenging task, especially in the present day’s economic environment, our debt restructuring attorneys think harder to find solutions that work for both parties. Ideally, the attorneys try to find solutions that prevent anyone from going bankrupt and work to reduce time and expense for both parties.

When a debt restructuring attorney is representing a creditor, the attorney’s main aim is to find solutions that will produce the highest debt recovery. They will evaluate the implications of possible bankruptcy and look at borrowers’ past financial activities in order to come up with the best solution for creditors while considering both long-term and short-term repercussions.

Types of Individual Debt Restructuring

There are two types of debt restructuring:

  • General debt restructuring: With general debt restructuring, the creditor or lender doesn’t incur any losses in the new debt repayment agreement. They may choose to reduce the interest rate or extend the debt repayment period to allow the borrower to recover from temporary financial distress and repay the debt at a later period.
  • Troubled debt restructuring: With troubled debt restructuring, the creditor or lender incurs losses in the new debt repayment agreement. The negotiations may result in a reduction in the total interest or a reduction in the value of the collateral.

Advantages of Debt Restructuring

Our debt restructuring attorneys can help you avoid bankruptcy cost-effectively by helping you negotiate a favorable debt repayment plan with your lender.

When you’re facing bankruptcy, the lender is more than willing to negotiate a debt restructuring instead of going through the trouble of repossessing your assets and selling them. In fact, the lender may end up with less money than the original debt. Thus, it is often in a lender’s best interest to allow an extension of the debt repayment period rather than to forgive part of the loan or attempt to repossess assets.

Debt restructuring seldom involves taking out new loans, unless it is done to consolidate other loans that carry less favorable terms. This helps protect you from accumulating more debt. It also cushions your credit score.

While you can negotiate your own debt restructuring, it’s far more beneficial to hire an attorney to do it for you.

A debt restructuring attorney has a wide experience and expertise in debt restructuring work.  At JRFPC, we understand a creditor’s goals and how to work with them to achieve an outcome that works for them while keeping our clients out of bankruptcy. Because of our extensive background in bankruptcy, creditors know that we are trustworthy when we explain to them that if they do not restructure a debt, they risk the entire debt being discharged in bankruptcy instead.  Ultimately, a successful debt restructuring is the best outcome for both the creditor and the borrower.

Debt restructuring negotiation is a time-consuming and energy-draining process for an individual. For a debt restructuring attorney, the process is still time-consuming but less so than for an individual because we understand how to cut through a lot of discussions to get to the point.  We also often work with the same creditors repeatedly, which allows us to build relationships with them that facilitate smooth and effective debt restructuring. In general, an attorney with experience can save an individual substantial time and money.

In addition, if we assist you in restructuring a debt with a creditor, we will also defend you against that creditor if they breach the agreement. For example, if a creditor agrees to give you 3 years to pay a debt and then attempts to garnish your wages, we can and will advise you on how to deal with the creditor, or we will take action on your behalf.

A borrower negotiating on their own behalf runs significant risks.  Such a borrower can be tempted to give in to unreasonable demands from a creditor, or fail to negotiate for the best possible deal.   Having an experienced and knowledgeable partner in JRFPC will mitigate  and reduce these risks.