Insolvency is a type of financial state where you cannot pay your debts any longer as they come due. This situation also occurs when your liabilities exceed your assets, and cash flow issues make it impossible to meet your financial obligations. Insolvency is not a legal process itself but a financial condition that can eventually lead to legal action, such as bankruptcy.
In comparison, bankruptcy is a legal process that individuals or businesses undergo when they are insolvent. When you file for bankruptcy, you file a petition in court, which allows for the restructuring or discharge of your debts. Bankruptcy provides a way for debtors to seek relief from creditors, or in some cases, eliminate certain debts completely.
The main difference between insolvency and bankruptcy is the process. Insolvency is a financial situation of being unable to pay debts, while bankruptcy is a legal procedure that follows insolvency. In some cases, you can resolve insolvency without resorting to bankruptcy through restructuring, debt negotiation, or other financial solutions. However, when these options fail or are insufficient, bankruptcy can be the next step.
If you are struggling with your personal or business finances and you want to know what you should do to move forward, we can help. For more information about insolvency or to discuss your options for restructuring your finances, reach out to us today.