The bodies that need the services of corporate bankruptcy attorneys most are banks and financial institutions. Banks and financial institutions are most affected by bankruptcy proceedings and therefore need the services of these professionals more than other organizations. The collection of loans is the lifeblood of banks and financial institutions and therefore collections should be done in the most efficient and advantageous way. One way in which companies in financial distress may arrange payments with their creditors is through the restructuring of the loan. In the restructuring of the loan, the creditor writes off the past loan and makes a new loan agreement with the debtor. The new loan has the same payment period, but is lower than the original loan because no payments that the debtor has already paid forms part of the new loan.
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If there is a loan restructure, the debtor proposes to reduce its debt payment to what it can afford. While a debt restructure reduces the debt obligation of the debtor, it earns a higher credit rating by the banks and financial institutions. This means that the debtor can obtain loans only if they agree to a higher interest ceiling to cover the risk of the loan. While a debt restructuring may be the easiest way to settle a debt obligation, the banks may place restrictions on how the company utilizes its earnings. This will enable the debtor to meet their loan obligations.
Of course, banks are averse to dictating the minute operations of a business that borrows money from them. The banks may not have competent personnel to advise them on the business operations of the companies that borrow money from them. The operations of a business are the principal problem of the stockholders and shareholders and their elected board of directors, not the problem of the bank. The banks concern themselves mostly with the financial aspect of the business, leaving the business decisions to the board of directors of the business and the stockholders who elected them into office. The banks may place restrictions on the way the business spends money it has earned to ensure prompt payment of their loans.
It is when disagreements arise over how the company should spend its earnings to meet its debt obligations that the unfortunate intervention of the courts becomes necessary. A bankruptcy attorney and all financial consultants under the hire of the bank may not always be successful in persuading the debtor in distress to take certain measures in order to meet their debt obligations. The recourse of using the courts should be the last resort of the bank when all reasonable negotiations for loan payment have failed to satisfy both parties. Court arbitration is very distressful to creditors. The debtor may suspend payments until the courts can come out with a decision. In the meantime, they will accumulate uncollected receivables that somehow will affect the profitability of the banks.
Therefore, the job of a corporate bankruptcy attorney is to carefully monitor the account and recommend appropriate measures and to persuade the debtor to agree to their proposed limitations on their expenses so that it is easier to pay the debt. The job of persuading the debtor to agree to the bank's proposal on their financial operations becomes easier when the debtor applies for new loans. That is why it is essential for the bank to gain the goodwill of their debtors so that they will be a continuous source of financing for the firm. The cost of hiring a competent corporate bankruptcy attorney and other financial consultants is part of the necessary cost of running any successful bank. Huge banks hire plenty of consultants. According to some studies, banks are the largest employers of economists. Banks need expert advice that only economists can provide.
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