Debt Reduction & Debt Relief

In the United States, small business bankruptcy filings cost at least $50,000 in legal and
court fees, and filing costs in excess of $100,000 are common. By some measures, only
20% of firms survive Chapter 11 bankruptcy filings. [2]
Historically, debt restructuring has been the province of large corporations with financial
wherewithal. In the Great Recession that began with the financial crisis of 2007–08, a
component of debt restructuring called debt mediation emerged for small businesses
(with revenues under $5 million). Like debt restructuring, debt mediation is a businessto-business
activity and should not be considered the same as individual debt reduction
involving credit cards, unpaid taxes, and defaulted mortgages.
In 2010 debt mediation has become a primary way for small businesses to refinance in
light of reduced lines of credit and direct borrowing. Debt mediation can be costeffective
for small businesses, help end or avoid litigation, and is preferable to filing for
bankruptcy. While there are numerous companies providing restructuring for large
corporations, there are few legitimate firms working for small businesses. Legitimate
debt restructuring firms only work for the debtor client (not as a debt collection agency)
and should charge fees based on success.
Among the debt situations that can be worked out in business-to-business debt
mediation are: lawsuits and judgments, delinquent property, machinery, equipment
rentals/leases, business loans or mortgage on business property, capital payments due
for improvements/construction, invoices and statements, disputed bills and problem
debts.
Debt-for-Equity Swap
Methods
In a debt-for-equity swap, a company's creditors generally agree to cancel some or all of
the debt in exchange for equity in the company.
Debt for equity deals often occur when large companies run into serious financial
trouble, and often result in these companies being taken over by their principal
creditors. This is because both the debt and the remaining assets in these companies
are so large that there is no advantage for the creditors to drive the company into
bankruptcy. Instead the creditors prefer to take control of the business as a going
concern. As a consequence, the original shareholders' stake in the company is
generally significantly diluted in these deals and may be entirely eliminated, as is typical
in a Chapter 11 bankruptcy.
Debt-for-equity swaps are one way of dealing with sub-prime mortgages. A householder
unable to service his debt on a $180,000 mortgage for example, may by agreement with
his bank have the value of the mortgage reduced (say to $135,000 or 75% of the
house's current value), in return for which the bank will receive 50% of the amount by
which any resale value, when the house is resold, exceeds $135,000.
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