Mortgage Newsletter

Debt Restructuring

Debt restructuring is a process that allows a private or public company - or a sovereign entity - facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.

Out-of court restructurings, also known as workouts, are increasingly becoming a global reality. A debt restructuring is usually less expensive and a preferrable alternative to bankruptcy. The main costs associated with a business debt restructuring are the time and effort to negotiate with bankers, creditors, vendors and tax authorities. Debt restructurings typically involve a reduction of debt and an extension of payment terms.

In the United States, small business bankruptcy filings cost at least $50,000 in legal and court fees, and filing costs in excess of $100,000 are common. By some measures, only 20% of firms survive Chapter 11 bankruptcy filings.

You are not just a person facing foreclosure - you have an entire financial environment to deal with.

Some are so caught up with the pain of their mortgage, because that ties into so much of the emotional "my house" syndrome - that it is hard to step back and take in a larger picture.

Your home mortgage is killing you and deliquent - but some of those credit cards can broach the astronomic 30% + fees for who can even figure out what sometimes. And the car loan . . . And the credit union . . . . and . . . .

At times - taking a step back and attempting to make small progress on everything is far more prodective than making large progress on one thing - the mortgage. OUr law firm can help evaluate your total ecomomic sitution, and it is possible that restructuring your consumer and residential debt together just might be enough to ride out these hard times. That might be the best possible outcome for your long term credit worthiness.

When to Renegotiate Debt

Renegotiating debt is best done before you are too delinquent. With a solid payment history with your lenders you are more likely to find them willing to work with you when you approach them. Debt can be restructured a number of ways but there are some cardinal rules to observe so that you preserve your ability to control the restructuring of your debt.

Do not wait until the debt has been turned over to a collection agency. By then it is too late to deal with the original issuers of the debt who might have an interest in helping you. They have discounted and sold off your debt when it is turned over to collections. That means they have written off what they would have conceded to you to a third party. The third party's only motivation is to make money off your bad situation.

Personal Budgeting for Debt Restructuring

Before you seek debt relief, develop a personal budget that is viable and a plan which you can handle. If your personal budget shows you have more than enough to handle the debt - the creditors won't work with you because you can afford to tough it out. If your personal budget shows you can't make it even with debt restructuring - the creditors won't work with you - because it will make no difference in the long run. This is where an experienced attorney comes into play, helping you mold the appropriate budget for long term debt resturcturing.

Persistence in Debt Renegotiation

Be persistent. "No" is easy for creditors to say. You will hear it a lot. Call back and try to get to someone else. Talk to the same person repeatedly until they begin to get to know you and start wanting to help you. As attorney's we can do this without the emotional baggage of the debt - its just business. A qualified attorney is your best negotiator.

Goals of Debt Restructuring

The three major goals of a total debt restructuring are an affordable payment plan, over a rational amount of time, and maintenance of your credit rating so that when the economy improves, you are not still behind the "8 ball" no debt - but a destroyed credit rating.

You have 3 things to negotiate, interest, time, and principal - those are the three areas that a good Debt Restructuring Attorney will tackle. If your crediots sell off your debt they will be lucky to get 50 cents on the dollar. Obviously we should be able to settle between 50% and 100%. If you offer to pay the full amount, but over time, you will be saving a lot in money and keep you credit rating from being impacted. Interest has to be negotiated. It does you no good to extend your payment period if you are also going to be paying a higher interest rate. Interest rates are negotiable.

Lastly, we will work had to attemtp to get the lender to not place this delinquency or restructuring of the loan on your credit report.

The most important aspect of personal debt restructuring is to ask before you get in too deep and before they start chasing you to pay. A good customer's case always sounds better than a plea from a habitual problem customer.

Taking Advantage Of Debt Restructuring and Debt consolidation

Using a debt consolidation loan will help you take charge of your monthly payments once more. Disposing of your high interest credit cards for
a low interest home equity or personal loan can easily cut your rates in half, if you are not too deeply into the deebt quagmire already.

By restructuring your debt with a new loan, you can also rearrange the payment structure. So you might decide to retire your debt with a small, easy to manage monthly payment over several years. Or you can opt for a short loan period with larger payments to quickly improve your debt ratio.

Debt Restructuring and Credit Scores

Once you have consolidated your bills with a new loan and retired old accounts, your credit score will have a minimal impact. And with regular
payments, it will quickly improve.

Why use an attorney for Debt Restructuring?

In some cases, you might want to turn to a company to help you regain control of your debt. A debt consolidation company can manage your short
term accounts and lower your rates on credit card accounts, helping you to stay out of bankruptcy.

By turning over control to a third party, you save peace of mind and money. But your credit score will have a temporary decline as creditors
place holds on new credit applications. For at least a year, they want to see that you will indeed be making regular payments.

If you just need some advice, a credit counselor can help you develop a budget with short and long term goals. They may also refer you to a
debt consolidation company or other financial services. With their training, they can help you see your finances more clearly.

When is Debt Restructuring Appropriate?

Typically Debt Restructuring is appropriate for commercial and investment roperties (often owned by companies) where the rate is high or may be djusting shortly (i.e. - option ARMS) and other terms are onerous at the ime. The programs will differ from bank to bank. Remember that this rocess is a moving target in a rapidly changing and challenging
environment.