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This can be a good option if you’re experiencing financial hardship and need some time to get back on your feet. But interest may continue to accrue on your debt during the deferment period, which can mean you end up owing more money in the long run. Debt consolidation is when you take out a new loan to pay off your existing debt. This can be a good option if you’re struggling to make multiple monthly payments. But it’s important to understand that debt consolidation doesn’t reduce the total amount of debt you owe. Bankruptcy, on the other hand, is a legal process that can discharge some or all of your debts.

Debt Restructuring

This can give you a fresh start, but filing for bankruptcy is expensive and will stay on your credit report for seven to 10 years. Creditors are often willing to work with you on restructuring your debt because they will receive more money than if you filed for bankruptcy. Zambia’s much-delayed debt restructuring is seen by analysts as a test case for what are expected to be a spate of defaults in poorer countries that have borrowed heavily not only in the capital markets but also from countries including China.

Alternative exit and restructuring strategies

Creditors may agree to forgo a certain amount of outstanding debt in exchange for equity in the company. This usually happens in the case of companies with a large base of assets and liabilities, where forcing the company into bankruptcy would create little value for the creditors. Countries can face default on their sovereign debt, and this has been the case throughout history. This can mean moving the debt from the pr iva te sector to public sector institutions that might be better able to handle the impact of a country’s default.

Debt Restructuring vs. Refinancing

The entitlement Bismarck instituted at his time was affordable by the state, because retired people would live another 2 or 3 years, not 20 or 30 years as they live today. Samsung, Hyundai, LG, Daewoo and SK, whose combined exports account for half of the country’s total exports, agreed to focus on core competencies by weeding out non-essential subsidiaries and affiliates. The examples and perspective in this article deal primarily with Europe and do not represent a worldwide view of the subject.

If the key issue is bank solvency, converting debt to equity via bondholder haircuts presents an elegant solution to the problem. Not only is debt reduced along with interest payments, but equity is simultaneously increased. Investors can then have more confidence that the bank is solvent, helping unfreeze credit markets. Taxpayers do not have to contribute dollars and the government may be able to just provide guarantees in the short term to buttress confidence in the recapitalized institution. For example, Wells Fargo owed its bondholders $267 billion, according to its 2008 annual report. A 20% haircut would reduce this debt by about $54 billion, creating an equal amount of equity in the process, thereby recapitalizing the bank significantly.

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