Debt Relief
Reconstruction of Debt
Reconstruction of debt summary:
If you’re struggling to make payments on your loans, reconstruction of debt can help make your monthly bills more affordable.
Not all creditors will agree to reconstruction of debt, but it’s important to ask for help as early as possible.
Types of reconstruction of debt could include loan modifications, deferred payments, debt management programs, debt settlement, or declaring bankruptcy.
Reconstruction of Debt Definition and Meaning
Reconstruction of debt, also known as debt restructuring, is when people renegotiate and rearrange their debts with the goal of making them easier to pay. If you’re struggling with multiple debts, reconstruction of debt might help you get a better path forward.
Some typical methods of reconstruction of debt include negotiating with your lenders to change the term length or interest rate of your existing debts. You could also restructure using a debt consolidation loan. Or you could try debt settlement, where the lender agrees to accept less than you owe to get rid of your debt.
Creditors won’t always agree to debt restructuring. But if you have overdue debts and your creditors agree to negotiate, you might be able to find debt relief through reconstruction of debt.
While reconstruction of debt could impact your credit score in the short term, it could also be the best financial path forward. Reconstruction of debt could help you get rid of debt and move on financially.
Types of Reconstruction of Debt
The phrase reconstruction of debt may include a few different types of debt restructuring and debt relief. Not every borrower will qualify, and not all creditors will agree. Some options for reconstruction of debt are a better choice for different types of loans and credit accounts.
Here are a few types of reconstruction of debt that you might want to try for debt relief.
Changing your loan terms
Also called loan modification, this type of restructuring lets you change the terms of your loan. For example, your creditor might allow you to have a longer term to repay the existing balance, which would reduce your monthly payments. Some lenders might agree to reduce your interest rate, waive penalty fees, or (in rare cases) reduce your balance.
Loan modifications are typically used for home mortgages or other fixed term loans like auto loans. Credit card companies will sometimes agree to change their terms if you’re experiencing financial hardship.
Deferred payments
If you can’t make a loan payment today, payment deferral could let you move that loan payment to the end of your loan term. The terms of your loan stay the same, and your interest rate does not change. With this type of restructuring, you still have to make all the payments (plus interest and possible penalties), but you get more time.
Debt management programs
If you sign up for consumer credit counseling, your counselor could help you renegotiate with your creditors to set up a new, more affordable payment plan. This type of reconstruction of debt is called a debt management program. It could be a good choice for people who want to avoid bankruptcy and who can afford to make payments over several years.
Debt settlement programs
If you're already behind on your debts and just want to get rid of them, a debt settlement program could be an effective option for restructuring your debt. This choice lets you—or a professional debt settlement company—negotiate with your creditors to accept less money than you owe to get rid of your overdue debts.
Bankruptcy
Filing bankruptcy could also give you options for reconstruction of debt. Chapter 13 bankruptcy could help you get rid of unsecured debts, like credit card debt. It could also help you keep your home and car while negotiating a plan to pay off those secured debts over time.
Real-life Examples of Reconstruction of Debt
Financial hardship could result in the need for reconstruction of debt. Say you’re experiencing job loss, reduced income, severe medical issues, or a death in the family. Any one of these could mean difficulty in paying bills and meeting financial obligations.
Contact your creditors as soon as possible and tell them about your situation. See what choices are available for reconstruction of debt. If you’re already overdue on your credit cards or other loan payments, you might need consumer credit counseling, debt settlement, or a consultation with a bankruptcy attorney.
Reconstruction of Debt FAQs
What is a debt relief program?
A debt relief program is when a company negotiates with creditors on your behalf to settle your debt for less than you owe. If your debts have become overwhelming, it can offer a way to avoid bankruptcy. Debt relief can stay on your credit report for some time. Also, debt relief companies typically charge between 15% and 25% of the loan balance.
Is there a government debt relief program?
The most common form of government debt relief is bankruptcy. But bankruptcy doesn’t always relieve debt.
If the court thinks you can afford a monthly payment, you may be put into Chapter 13 bankruptcy. You’ll make payments on your enrolled debts for three to five years and if any balances remain at the end of your program, they’ll be forgiven. About half of Chapter 13 enrollees do not end up having any debts forgiven.
If the court decides you don’t have enough disposable income for a payment, you’ll be enrolled in Chapter 7 bankruptcy, where all of your enrolled debts are forgiven within a few months. In Chapter 7, if you have assets, you might have to sell them.
For both kinds of bankruptcy, participation is mandatory. That means if a debt qualifies and you want to enroll it, the creditor can’t refuse to participate. Some kinds of debts don’t qualify, like federal student loans in most circumstances.
The other kind of government debt relief is for federal student loans. You can apply for a deferment or a forbearance. In a forbearance, interest will continue to accrue and if you don’t make any payments, you'll owe more at the end of the forbearance than you did before. In a deferment, some types of loans continue to accrue interest, but some don’t.
Will credit card companies let you defer payment?
Yes, some credit card companies will let you skip payments for a time. However, it’s important to understand the terms. In some cases, you might still incur interest. That interest would add to your balance.
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Debt relief is when a creditor forgives or cancels the money you owe. Freedom Debt Relief is the leading debt relief company that helps you negotiate and settle your debt.
When you need help with budgeting and debt, you may turn to consumer credit counseling. Find out more about credit counseling and how it works.
Learn about the bankruptcy options available to individuals. Bankruptcy options for individuals include Chapter 7, Chapter 13 and Chapter 11.
Debt relief is when a creditor forgives or cancels the money you owe. Freedom Debt Relief is the leading debt relief company that helps you negotiate and settle your debt.
When you need help with budgeting and debt, you may turn to consumer credit counseling. Find out more about credit counseling and how it works.
Learn about the bankruptcy options available to individuals. Bankruptcy options for individuals include Chapter 7, Chapter 13 and Chapter 11.