Debt restructuring is the process of realigning a company's existing debts in order to increase liquidity. Businesses, individuals, and even countries use it to reduce debt obligations and to realign the capital structure. With debt restructuring, a company restructures its debt terms to renegotiate with its creditors, such as lowering interest rates or extending repayment terms or a change in security package. It can be used to reduce or eliminate the interest rate on existing debt or refinance existing debt. For a debt restructuring to work effectively it should be accompanied by either an equity injection and/or a disposal of non core assets Reason for Debt Restructuring Primarily a company considers debt restructuring while experiencing liquidity problems that are difficult to resolve. In such cases, the company has few options to restructure its debts or declare itself bankrupt. Most companies prefer restructuring their debts, which is more cost-effective in the long run prov