Using Loan Restructuring Vs. Refinancing To Evade Bankruptcy

Loans are amazing as long as you can repay them in good time and maybe use them to build your credit score. Given that nothing is ever set in stone in life, unforeseen circumstances such as the loss of your job can lead to you defaulting on your loan. In the worst case scenario, you might consider filing for bankruptcy, but there are still many options available for dealing with your loans without walking this path.

In America, ten out of every 1000 citizens file for bankruptcy annually, according to Bsc Alliance, and instead, they end up incurring some extra costs. Two of the best options for evading bankruptcy are loan refinance and loan restructuring. With the right move, you can come up with a great solution with your lenders and save your credit score.

Here are a few details about using these methods to evade bankruptcy:

What Bankruptcy Means To the Borrower

Lenders will always want to evade situations where their clients default on their loans. Consequently, they try their best to tailor their services to the best options for the borrower. When the worst comes, both parties go home with a loss in case the client decides to file for bankruptcy.

As a borrower, you will have to part with the extra fees for hiring a lawyer to file for bankruptcy, not to mention the cost of filing government paperwork. You will also have to incur credit counseling charges to ensure that you can make better financial decisions in the future or to try and evade the suggested move for bankruptcy. As if this isn’t damage enough, your credit score gets severely damaged, ruining your chances to apply for loans at favorable rates until you can rebuild it back.

What Bankruptcy Means To the Lender

The lender takes the greatest loss. They start by losing their investment in terms of the lost principal amount and the expected interest. In case the loan was unsecured, there is nothing a lender can do to stop this. On the flip side, if the loan was secured, they can offset the loan balance by liquidating the asset that was used as collateral. Sadly, this still comes tied with the cost of trying to liquidate the said asset. They will also have to incur legal fees.

Fighting Bankruptcy with Loan Restructuring

Lenders want to steer away from bankruptcy as much as they can to evade the ad hoc costs. At its core, debt restructuring involves holding meetings with the lender to change the details of your loan to favorable policies. You, as the borrower, will have to negotiate terms that will result in a win-win situation for both parties.

Your credit score will get damaged, but the effect will be relatively small when compared to the effects of bankruptcy. Common solutions are extending the loan repayment periods, eliminating late payment fines or even modifying the frequencies of loan payments. Alternatively, lenders can ask you to swap debt for equity in case you have a valuable asset.

What About Refinancing

With debt refinancing, you will apply for another loan with a better rate to offset the balance on your previous one. This option has the potential to improve your credit score since the previous loan will be paid off in full. Additionally, it is quicker to apply for this, and you can enjoy lower interest rates, especially if your previous fixed rate loan had an interest rate higher than the market rate.

In most cases of fixed-rate loans, lenders tend to have penalties for prepaying the loan before its maturity period. To avoid refinancing your loan while being short of some cash, account for this fact as you calculate the amount the next loan ought to be worth.


Filing for bankruptcy should by all means be the last option. As long as you have exercised financial responsibility over the life of your loan, lenders will be willing to walk the refinancing or restructuring path with you. Consider your options to make a wise financial decision.


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