What Is Debt Restructuring and Financial Rehabilitation?

Financial upheaval can ruin your credit score, affect your relationships, and set you on a downward trajectory. Imagine the mental drain resulting from the roller-coaster rides that our financial lives can become. Sometimes, the bottom falls out, and we can’t figure our way out of a situation. When you are about to take a tumble financially, you need a lifeline, a straw to clutch onto before everything goes asunder. 

If the sound of a knock from debt collectors is the last thing you want to hear, stay with me. Let’s discuss a plan to set you back on the path to financial recovery. 

What Is Debt Restructuring?

Sounds like a mouthful, right? But first, you might want to learn more about Halifax Debt Freedom to understand other aspects that a debt recovery plan might entail. Read on to gain some insights. Now, have you ever taken a loan or know of someone who has, without reading the fine print? It’s surprising how many people do. Unfortunately, the terms and conditions of a loan can be constraining and rigid. In this regard, you could end up defaulting, leading your lender to classify your debt in the non-performing loans section. 

In some instances, a lender may opt to sell listed assets (your collateral) to offset debt arrears. Or even worse: they may choose to sue you for defaulting on a loan. Things can get a tad hairy from that point. Does everything have to end up that way?

Debt restructuring may offer a reprieve. It involves attempting to restore normalcy in your financial situation through various ways, but the idea is the same: to reduce the principal, interest, or recurring monthly payments. 

Also, consider someone in the throes of substance abuse seeking rehabilitation. Medical rehab plans can promote physical and mental well-being, helping restore an individual’s life. The same goes for a financial rehabilitation process. 

Debt restructuring and financial rehabilitation are interchangeable terms. Their main aim is to help you get out of debt and to help you better handle your finances. 

If your business is in debt, or you can’t figure out a way to pay a creditor, a financial rehab plan can help keep your debt to a manageable level. Doing so would ensure you can keep doing business while meeting your financial obligations. 

Debt restructuring and financial rehabilitation may take a financial or legal approach. Some of the financial avenues include:

  • Debt consolidation- rolling your debts into one to speed up repayment. 
  • Debt rescheduling- an arrangement to either extend the payment duration or lower payable amounts for a given period. 

Filing for Bankruptcy

A legal avenue for debt restructuring involves filing for bankruptcy. If your financial life has been circling the drain, the legal option may be a last resort. In this case, a judge may offer a ruling based on their assessment of your case to wipe out part of your debt, leaving you to repay the remaining amount at a lower rate for a given period. But wait, there’s more.

Bankruptcy proceedings can take time and require additional funds to cater for legal fees among other charges. Consequently, we advise a cautious approach before selecting this option. Does restructuring offer any benefits? Yes. 

The Upside

1. Keeping Your Head Above Water

Failure to settle a personal or business loan can sink anyone’s dreams. By reorganizing your financial life, you can get your house in order. A favorable repayment plan can help keep your business on track and make life less stressful and more manageable.

2. Protects Assets

Debt restructuring can also safeguard your collateral- assets put up as security in case of non-repayment of a loan. Restructuring your debt is often a show of commitment to settle your dues, which in turn would keep creditors or other lenders off your back. It also reduces the risk that you might face a lawsuit for defaulting on payments. 

The Downsides

1. A Hit on your Credit Score

While we agree that debt restructuring serves as a financial relief valve, it might affect your credit score in the long run. Taking out a loan to restructure your debt could affect how future lenders perceive your creditworthiness. 

2. Higher Cost and a longer repayment period

Unfortunately, a bad credit score means a lender may have to charge you higher fees to account for the risk they are taking on you. A longer repayment period may sound like an ideal plan, but you are likely to pay more over time.  

You might need to shop around to find a lender offering friendlier and more reasonable terms. Look at the bigger picture to keep interest rates low and not just the immediate need to reduce your monthly payments.  

A successful restructuring or financial rehabilitation plan hinges on the help you can get as you take the baby steps towards recovery. Getting back on your feet as an individual or business may take time, but with the right help, you can get there. If you need to evaluate ways to claw your way back to ‘financial civilization’, you can talk to a debt relief expert to discuss the way forward.