How Does Debt Restructuring Work?

What is debt restructuring?


Debt restructuring can provide you with some much-needed relief so you can get back on your feet. Debt restructuring can mean wiping away your debt in bankruptcy or working with your creditors to reduce the amounts owed or lower your interest rate.

While debt restructuring may sound appealing, it’s not for everyone. It’s important to understand how it works.

Here’s what you need to know about each debt restructuring approach.

1. Restructuring via a debt management plan

With a debt management plan, you work with a corporate consultant. The consultant takes on the debt, and through their relationships with creditors, negotiate to reduce the interest on your accounts and consolidate your payments into one.

2. Restructuring via winding-up

With this approach, you go to court and the judge takes a look at your debt. In some cases, some of your debt may be wiped out completely, and the rest is restructured — often with a lower interest rate — so you can pay it off within few years.

Winding-up can take much longer than a debt management plan. If you’re considering this option, start looking for an attorney.

Advantages and drawbacks of debt restructuring

Regardless of which path you take with restructuring — entering into a debt management plan or winding up — there are some advantages and drawbacks you should be aware of first.


  • Collection calls stop: If your accounts were late and you were receiving collection calls, those calls will stop once you start restructuring your debt.
  • Damage to your credit score ends: Damage to your credit score stops happening under the debt management plan or winding-up, you’re listed as current on your payments.
  • Ability to pay off the debt in three to five years: With each approach, you have a date you can circle on a calendar for when you’ll pay off your debt, giving you peace of mind.


  • Long-term damage to credit report: If you choose to winding-up, it will stay on your credit report for up to 10 years, making it difficult to qualify for new credit.
  • Loss of access to cards: With a debt management plan and bankruptcy, you’ll lose access to your credit cards. Going forward, you’ll have to rely on cash until your credit improves enough that you can qualify for a new card.

Managing your debt

If you’ve overwhelmed by your debt and feel like you’ll never be able to dig yourself out of the hole you’re in, debt restructuring can provide you with significant relief.

Be sure to talk with our consultant, it is free of charge for your case to be reviewed by us.

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