There are two types of debt restructuring. The first is called general debt restructuring, where payment due dates are extended by creditors so that the debtor can pay the debt in full. Troubled debt restructuring is when the current amount owed on the loan is reduced, either by reducing the value of a secured asset, or by waiving accrued interest.
When a creditor agrees to a general debt restructuring arrangement, he can reduce current payments and extend the due date of the loan. The creditor may also reduce the interest rate for future payments.
When a creditor agrees to a reduced total payment amount for the loan, he has agreed to a troubled debt restructuring arrangement. The total loan can be reduced by forgiving accrued interest or reducing the value of loan by reducing the value of the secured asset.
Typically, general debt restructuring is preferable for both the creditor and debtor. The creditor does not incur a loss on the debt, and the debtor's credit rating is minimally impacted. However, troubled debt restructuring, as its name implies, may be the only option for both parties if there is no hope of paying off the debt in a reasonable time frame. In either case, a credit counseling service can best assist debtors in negotiating debt restructuring arrangements with creditors.
If you are having trouble paying debt, contact a qualified attorney or an approved credit counseling service in your state.