Debt restructuring refers to a process allowing companies to manage the payment of debts. It happens when a company is suffering financial difficulty and needs a realistic payment scheme—or risk default.
Debt restructuring may involve the reduction of debt, setting of lower monthly payments, extension of payment deadlines, or a combination of these. By having its debt restructured, a company will be able to increase liquidity. It will also be better able to continue operating normally.
Companies usually opt for debt restructuring instead of bankruptcy,which can be more costly. Declaration of bankruptcy brings costly legal expenses with it whereas the usual costs for restructuring only involve the time and resources necessary to enter a negotiation with the bank or loan institution.
Individuals with difficulty managing their outstanding debts may also request for debt restructuring from a bank or loan institution. If the individual has several debts, it is necessary to keep clear records of all of them before the request is made. This will help the individual determine a realistic amount to be paid monthly, and therefore equip him with the proper information to be communicated with the lender. In some situations, debt consolidation may come in handy.
