There are two forms of debt restructuring that are most common. They are going through a type of financial counseling agency, and chapter 13 bankruptcy. Both options are for when you are in serious debt and have exhausted all other options. There are advantages and disadvantages to everything, and here we will go over the pros and cons of debt restructuring and its effects.


Pros of restructuring

Some of the benefits to restructuring your debt can be so relieving. Whether you are going through a credit counseling agency or decided to go the bankruptcy route, the collection calls and late or delinquent notices will cease. After filing for chapter 13 bankruptcy, an automatic stay is ordered and your creditors are prohibited from contacting you. Your restructuring agency will also help the harassing phone calls and notices to end by them paying your creditors each month with the funds they get from your monthly payments. They also mention to them to stop contacting you when they negotiate your debt on your behalf.

Another advantage to restructuring is that no more damage can be done to your credit. This is because your accounts will be getting paid monthly by your representative so it will actually have a positive effect on your credit report because it will show consistent, on time payment history. And if you filed for bankruptcy your credit cannot really go lower, after the initial hit after you file, because you will no longer have that unpaid debt lowering your score each month it goes unpaid.

One of the greatest things about debt restructuring is that you will be free from your debts within three to five years. You will finally be able to see the light at the end of the tunnel that you have been searching for. Thanks to your financial or legal team who will always be by your side if you have any questions or concerns because let’s face it, sometimes things can get a little confusing.


Cons of restructuring 

If you filed for chapter 13 bankruptcy your credit will have some serious damage to recover from. It will stay on your credit report for the next seven years but once it is on there and it does its damage, you can only go up from there. If you go the restructuring loan route it won’t damage your credit hardly at all.

A major disadvantage to debt restructuring is that you will lose access to your credit cards. Your credit cards were more than likely a big factor in having to restructure your debt in the first place. You will not be able to access them after beginning the process because the accounts will have either been eliminated through bankruptcy or taken over by your credit restructuring advocate. It will more than likely be a while before your credit improves enough to apply for a new credit card. When you are finally able to get a credit card again, it will probably have a high interest rate and an annual fee attached to it. Cash will become your new best friend in the meantime, which can be a good thing because cash is easier to see go away after you spend it than swiping a card is.

Fees are definitely a disadvantage, especially in situation like this. No matter what option of restructuring you opt for, you will end up paying a fee of some sort. If you go through a nonprofit credit counseling agency, the fees will be a little lower than going through a lawyer. When you go through a lawyer they will factor their fee into your monthly payment so you won’t even have to think about paying it. If you end up filing for bankruptcy you will have to pay out of pocket for an attorney and their fees and also for the court costs. Keep in mind that you have to go to court at least twice when going through a bankruptcy. This can be quite expensive so be sure to weigh your options carefully.


When you have a lot of debt and you find that restructuring it is the best or only way to go, be sure to choose your option wisely. If you choose to go through an agency and have them negotiate better terms for you, you will not have as lasting of an impact to your credit. Bankruptcy can be great if you just have too much debt to fathom paying off. But there are some more serious consequences in this case. Seeking financial advice before making your decision on what to do is crucial. The choice you make will affect you for years to come, so be certain of your decision.

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