> For the complete documentation index, see [llms.txt](https://docs.trilobyte.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.trilobyte.finance/protocol-mechanics/vault-lifecycle/renegotiation.md).

# Renegotiation

The **Renegotiation** phase allows the Pool Manager to propose modified loan terms when circumstances change. This happens from the **Active** phase — a struggling loan can be restructured *before* it defaults. (Once a loan has defaulted, the manager's collateral is already slashed and it cannot be renegotiated.)

## When to Renegotiate

Renegotiation is useful when:

* The borrower is struggling with payments and needs adjusted terms
* Market conditions have changed and rates need updating
* A struggling loan needs restructuring *before* it defaults
* The loan term needs to be extended or shortened

## How It Works

### 1. Propose

The Pool Manager calls `propose_renegotiation(caller, new_interest_rate, new_loan_term)`:

* The vault's current phase (**Active**) is saved
* A `RenegotiationProposal` is stored with the new rate, new term, and timestamp
* The vault transitions to the **Renegotiation** phase

### 2. Approve or Reject

The Pool Manager then either approves or rejects the proposal:

**If approved** (`approve_renegotiation`):

* The vault's interest rate and loan term are updated
* The **EMI is recalculated** based on the **outstanding principal** (not the original principal)
* Payment tracking is reset: `payments_made = 0`, `missed_payments = 0`, `late_fees = 0`
* The **next due date** is set to 30 days from now
* The vault transitions back to **Active**

**If rejected** (`reject_renegotiation`):

* The proposal is discarded
* The vault returns to the **Active** phase

{% hint style="warning" %}
Only one renegotiation proposal can exist at a time. A new proposal cannot be created while one is pending.
{% endhint %}

## Key Details

* Only the vault's **Pool Manager** can propose, approve, or reject renegotiations
* The EMI recalculation uses the **remaining outstanding principal**, not the original principal — this means the new payment schedule reflects what's actually owed
* Renegotiation is a **pre-default** tool — it lets a manager restructure a struggling loan while it's still Active. Once a loan defaults, the manager's collateral is slashed and the loan can no longer be renegotiated.

## Relevant Functions

| Function                                    | Caller  | Description                             |
| ------------------------------------------- | ------- | --------------------------------------- |
| `propose_renegotiation(caller, rate, term)` | Manager | Propose new terms                       |
| `approve_renegotiation(caller)`             | Manager | Apply new terms, recalculate EMI        |
| `reject_renegotiation(caller)`              | Manager | Cancel proposal, restore previous phase |
| `get_reneg_proposal()`                      | Anyone  | View current proposal                   |