Debt Rescheduling

Debt rescheduling refers to restructuring the terms of an existing loan or bond in order to extend the repayment period. It may mean a delay in the due date(s) of required payments or reducing payment amounts by extending the payment period and increasing the number of payments.

Debt rescheduling is one way to provide a borrower with relief when needed due to an economic downturn or another unforeseen event (e.g., job loss, illness, etc.). A lender is likely to work with a borrower to reschedule a debt because rescheduling represents a better option for the lender than default.

Governments may also require debt rescheduling. During the European debt crisis, Greece could not make full payments on its bonds and was able to negotiate a debt restructuring. As part of the process, private bondholders were asked to take a haircut on their holdings of Greek bonds. To address future rescheduling, European officials established a fund to buy the troubled debt of Eurozone member governments. Governments that are allowed to take advantage of the fund are often required to make economic reforms.