What is troubled debt restructuring and extinguishment?
Troubled debt restructuring and extinguishment will occur when a creditor grants a concession to the debtor that would not otherwise be considered. The visual below is a recap on the terms debtor and creditor, and why the debtor and creditor would have to restructure the debt arrangement:
These incidents will occur for economic or legal reasons related to the debtor’s financial difficulties. The visual below maps out the timeline for a troubled debt restructuring transaction:
Troubled debt restructuring will involve one of two types of transactions:
1) Settlement of debt at an amount that is less than its carrying amount.
2) Continuation of debt with amendment terms.
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