When your business begins missing debt payments or incurring other ordinary expenses, restructuring its debt may save it. A commercial bankruptcy attorney can explain your alternatives to filing for bankruptcy in Pennsylvania.
Understanding Business Debt Restructuring
A business debt restructuring involves reducing a company’s total debt payments to make servicing its debt cheaper. Debt restructuring helps make paying debts more affordable for a business, given its current cashflows, by amending loan terms, reducing payments, and extending deadlines. However, companies may wish to restructure debts outside bankruptcy to avoid legal expenses, negative stigma, and adverse credit effects.
Non-Bankruptcy Options for Business Debt Relief in Pennsylvania
Companies in Pennsylvania do not always have to file for bankruptcy to resolve unsustainable debts. Some of the most common non-bankruptcy avenues for restructuring business debts include:
- Debt Settlement Negotiations – A business may restructure its debts by negotiating with its creditors to settle debts. In a debt settlement agreement, a creditor agrees to accept a lump sum payment for less than the total amount owed on the debt in exchange for waiving the remaining balance. Debt settlements can help get debts off a company’s books to make its total debt load more manageable.
- Debt Consolidation Loans – Companies can restructure their business debts by refinancing them through debt consolidation loans. In a debt consolidation loan, a company uses loaned money to pay off multiple business debts, giving the business a single payment lower than the total amount of the payments of the other debts. A debt consolidation loan can offer a lower interest rate and a longer repayment period.
- Workout Agreements – In a “workout” agreement, a company and its creditor can agree to modify a business loan to make it more affordable. Creditors may agree to workout agreements when a company normally has stable operations but currently experiences temporary and solvable cash flow issues that have restricted its ability to service debts. Workout agreements may modify loan terms such as interest rates, maturity date, or the principal amount (with the creditor forgiving a portion of the loan to reduce the principal amount).
- Assignment for the Benefit of Creditors – Companies and their creditors can avoid the time, complexity, and expense of bankruptcy when resolving debts by negotiating assignments for the benefit of creditors. Under these agreements, companies can sell business assets to generate funds to pay off and settle debts.
When Might Your Business Need to File for Bankruptcy?
However, non-bankruptcy alternatives for debt restructuring do not always solve a company’s debt issues. As a result, companies may still need to file for bankruptcy under certain circumstances, such as:
- Business insolvency (the company’s liabilities exceed its assets)
- Debt collection lawsuits (the bankruptcy stay can pause those lawsuits)
- Creditor refusals to cooperate (creditors may decline to negotiate settlements, workout agreements, or assignments)
Contact a Bankruptcy Attorney Today
When your business cannot service its debts or pay ordinary expenses, a bankruptcy attorney can help you explore alternatives to bankruptcy for restructuring your company’s debt. Contact The Cooney Law Offices today for an initial consultation with our legal team to discuss your options for restructuring business debt in Pennsylvania.
