Steps of debt restructuring you should know
Debt restructuring is one alternative to resolve bad debts occurred. Normally there are two terms viewed by creditors to restructure the debts. The first one is depending on debtor’s reputation. It means that the debtor is a person who is known as trustworthy person. The second one is the assessment of the creditors regarding debtor’s businesses, whether debtor’s businesses can be considered as still profitable.
In the framework of the debt restructuring process, creditors will usually give concessions or waivers for the debtor in getting out of debt. The forms of these concessions include:
1. Changes in the origin of the contents of the credit agreement and usually this change in the form of changes in the type of currency used. This facility is provided to give relief amount to be paid by the Borrower to the Lender in the form of other foreign currencies which have more favorable exchange rate rather than the old ones.
2. The decline of interest rates in terms of Principal Interest Rate.
3. The decline of interest rates in terms of Basic Cost.
4. Reducing Interest Clause Default Interest.
5. Removing a part of The Principal Loan Amount.
6. Rescheduling The Grace Period, the debtor is not required to pay the principal debt in advance;
7. Rescheduling Installment i.e. rescheduling of principal debt payments; and
8. Refinancing debt from one bank to the others.
Debt restructuring is usually manifested in a treaty. Patterns of restructuring will be governed by the agreement, preventing the debtor violates the agreement. The safety clause called “Recapture Clause” will be created, containing a statement that all concessions will be revoked if the debtor violates the agreement given. In the event that after the debt restructuring, the debtor remains incapable of paying the debts, the debt will be converted into specific assets such as stocks or assets in the form of other goods.