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What is Debt Adjustment?

Malcolm Tatum
Updated: Jan 25, 2024

Debt adjustment is a process that makes it possible to reorganize current debts as a means of managing the debt load more efficiently. The idea behind this process is to make it possible for the debtor to avoid defaulting on any of the debts and still pay off each one in a timely manner. From this perspective, debt adjustment can be seen as one form of debt relief, since the process involves working out repayment terms with creditors that may even include those creditors accepting less than the original amount due in order to settle the account.

The tool of debt adjustment may be used by individuals, businesses, and even governments. In many cases, the idea is to reorganize the debt in a manner that is more manageable for the debtor, while still allowing the debt to be paid off in time. This approach is often an alternative to bankruptcy options that essentially discharges the debt with a court order, although there are forms of bankruptcy in many countries that are actually more along the lines of debt adjustment or reorganization.

With the actual process of debt adjustment, creditors are willing to work with a debtor in order to structure a repayment plan that will eventually eliminate the debt. Those arrangements may be structured with the aid of an intermediary, such as a debt settlement agency. Debtors may also approach creditors individually and come to some sort of arrangement. Typically, this approach stops or at least reduces the amount of interest that is applied to the outstanding balance and fixes a specific amount per month that will be tendered to retire the debt. It is not unusual for the debtor’s account to be closed to further use as long as the account is in the adjustment phase; once the account is paid in full, some creditors will consider applications for new accounts, depending on the current financial circumstances of the debtor.

There is also the chance that a creditor may offer the debtor a chance to pay a reduced amount in order to settle the outstanding debt. With this approach to the debt adjustment process, the creditor agrees to accept the reduced amount if the debtor agrees to make a lump sum payment, or a series of three or four payments over succeeding months. Should the debtor fail to honor these terms and default on the new arrangement, the amount of the debt reverts to the previous amount, with interest and penalties assessed as if the reduced settlement had never been offered.

Debt adjustment is often considered a viable means of avoiding bankruptcy. It is important to note that while this approach does allow debtors to eventually retire their debts, there are no guarantees that adjustment will prevent damage to the credit rating. Depending on the circumstances, the individual or business may find that filing for bankruptcy protection and seeking to have the debts discharged may be the most prudent course of action over the long-term.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

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Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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