Often people use the terms “insolvency” and “bankruptcy” interchangeably when they are in fact different. If you are potentially facing financial problems and looking for solutions, it is important to know the difference between the two.
Insolvency is when you are unable to pay your debts when they fall due. It is used as a blanket term to cover all types of debt problems. Comparatively, bankruptcy is one of the legal processes available to solve insolvency. It is important to note these differences as you can be insolvent without being bankrupt, yet insolvency can lead to bankruptcy.
Insolvency is a state of economic distress where you are no longer able to meet your debt repayment obligations when they fall due for payment. This usually happens when an entity’s cash inflows are less than its outflows. For individuals, an indicator of this could be not being able to pay off an electricity bill or meet minimum credit card payments when they are due.
Bankruptcy is the legal declaration of one’s inability to pay off their debts. This solution is appropriate where you can no longer pay off your debts or when you have more liabilities than assets (owe more than you own). You can either declare bankruptcy yourself or by one of your creditors who may apply to a Bankruptcy Court to declare you insolvent. Whilst bankruptcy will release you of your debts it may have serious consequences for your financial future and credit file.
If you are facing these financial issues or want more information on insolvency and bankruptcy contact CRS Insolvency Services on 1800 210 073 for 24/7 free expert advice.