Whether you are an individual or a business that has found themselves in trouble with debt that you don’t know how you’re going to repay, you might find yourself making a compromise with creditors. This is a process where an agreement is made to pay a reduced amount of the debt that you owe. This is an approach that is taken when the creditor sees that the financial position that you are in means that it is unlikely that repayment can be made in full. It helps the debtor avoid insolvency. Principle Insolvency is here to talk about what a compromise with a creditor looks like and when it is appropriate to take this step.
What a Compromise with a Creditor Looks Like
The process of compromising with a creditor looks like this:
– Assessing Finances: The debtor in this situation is going to take a close look at their financial situation. When they take into account repaying a debt, they will consider things like what their income looks like, their assets, and expenses that they are responsible for.
– Proposal: The next step is to draft a proposal for the creditors. This document will show the timeline for repayment, the amount and the terms.
– Approval: When the creditor has had time to look over the proposal, they will then decide whether or not they want to move forward with the agreement. All the creditors must agree by majority for the plan to move forward.
– Legal Binding Agreement: Once the compromise is accepted, this is a legally binding agreement. As long as the terms of the proposal are being met, the creditor can’t ask for any more money.
Different Types of Compromise
Depending on the creditor’s situation, a creditor compromise might look different. Here are the different types of compromises that might be agreed upon:
– Lump Sum: This is when the debtor pays one large payment to settle all of the debt that they owe.
– Payment Plan: Over an extended period of time, the debtor will make payments to the creditors until the agreed upon amount has been paid in full.
– Hybrid: This is a compromise where there is a combination of a lump sum at the beginning and then payments that are made after that to pay the debt.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
It is important to know that most unsecured debts can be included in a compromise with creditors. This could include credit cards, personal loans, and even some outstanding bills. If you are having a difficult time navigating the creditor compromise process, you can turn to Principle Insolvency to help you get things finalized. It is our goal to help individuals and businesses work past the outstanding debts that they aren’t able to pay back. If this means liquidating a business, we can help you with the process. We have the expertise and skills needed to help. Call us today!