when companies are struggling to service debt lenders can take proactive steps to restructure loans to maintain cash flow and avoid classifying loans as nonperforming when defaulted loans are collateralized by assets of borrowers lenders can take possession of the collateral and sell it to cover losses to the extent of its market value 
lenders can also convert bad loans into equity which may appreciate to the point of full recovery of principal lost in the defaulted loan when bonds are converted to new equity shares the value of the original shares is usually wiped out as a last resort banks can sell bad debts at steep discounts to companies that specialize in loan collections lenders typically sell defaulted loans that are not secured with collateral or when the other means of recovering losses are not cost effective 