This is a great question. The simple answer to this for most people, would be that debt restructuring is a new arrangement or reorganization of your debt terms.
Your debt terms are basically what you agreed to when you first took on the debt. Things like the amount borrowed, the amount of interest that you are required to pay, the length of time you have to pay back your creditor and the monthly payment.
All three of these can be re-negotiated if you have the proper debt settlement plan in place.
Generally, debt restructuring has 3 basic categories.
Informal Debt Settlements – This can be a good option for people that have outstanding debts in collections and wish to avoid a bankruptcy or consumer proposal. This can work well for clients that are asset rich and cash poor. When you combine informal debt settlement and credit rebuilding programs re-establishing credit does not take very long. Almost all informal debt settlements involve a one time payment to the creditor.
Consumer Proposal –
This is formal offer made to your unsecured creditors under the bankruptcy and Insolvency Act through a licensed Trustee in bankruptcy. Licensed Trustees in bankruptcy are officers of the court and represent your creditors.
A standard proposal is monthly payment, over a term up to 60 months but the proposal can be structured in many ways and you are only restricted by the creativity of the company structuring the proposal for you. How the proposal is structured can have a big impact on your ability to successfully complete the terms of the proposal and how long it will report on your credit report.
Once the proposal is submitted the creditors have 45 days to vote on whether or not to accept the offer. There is zero interest paid and the proposal can be paid out as quickly as you like with no penalties. All filings under the Bankruptcy and Insolvency Act are filed with a trustee, the trustee is a person licensed by the Superintendent of Bankruptcy to administer proposals and bankruptcies.
The trustee represents your creditors and is an officer of the court. All trustees view things differently and this can have a dramatic impact on how a proposal is structured and your likelihood to successfully complete the proposal, if the proposal fails then you are back in the same position you were prior to filing and usually most consumers end up filing a bankruptcy. This is the most severe form of restructuring and normally something that consumers like to avoid for obvious reasons.
Unless you have a very comprehensive understanding of the Bankruptcy and Insolvency act we would always advise you obtain you own professional representation through the process.
Bankruptcy –
This is the most drastic option for most debtors. A first bankruptcy would stay on your credit report for up to 8 years, and a second bankruptcy for 14 years. Bankruptcy means your income and assets are constantly monitored during the period you are in bankruptcy and this determines how much you pay back and how long you are in bankruptcy. At the time of filing bankruptcy all non-exempt assets become property of the trustee.
Summary –
Any debt restructuring plans should involve more than just the solution to deal with the debt. A successful debt restructuring plan should be based on your long term financial goals and be part of your road map for longer term wealth creation.
4 Pillars works on behalf of the debtor and every plan we create is based on what is in the best interests of the debtors (our clients) and allows the client to deal with debt as part of their long term financial plan not in isolation. Debt is the single biggest threat to achieving our financial goals and how we deal with it can have a long lasting impact on our financial future. In the debt advisory business we truly believe that you either represent the interests of the debtor or of the creditors and it is impossible to do both without compromising on the outcome.
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For more information contact the 4 Pillars Kitchener office discuss you situation or setup your free consultation. Call us directly at Tel: 519-502-9277 to learn more about how we can help.
