Bankruptcy and insolvency sound very similar and require similar conditions to be eligible, but they are not the same. They both are solutions to a financial crisis and offer some form of aid to get you out of your financial debt and help you pay your creditors. However, they account for different stages of your situation, and for you to be considered eligible depends on various factors. It’s important to thoroughly understand it before making any decisions that impact your finances. Simply put, insolvency is your current financial state that can be changed over time, whereas bankruptcy is a legal declaration and process that you must file for after assessing all your options and finding no other solution to pay off your debts. For a more in-depth analysis of bankruptcy and insolvency, here’s a brief overview so that you can differentiate between the two.

What is Bankruptcy?

Bankruptcy is a legal process where you eliminate your debts by assigning your assets over to creditors. In the process, you are relieved of your debt and declared financially insolvent. In other words, you are declared completely unable to pay off your debt at any time. You are only eligible if you cannot resolve your debt obligations because you don’t have enough finances to make payments or because you owe too much money to your creditors. You will have the option to restructure your payment plan with the following: selling your assets to make money in order to pay off your debt to your creditors or assign your assets over to them entirely. Bankruptcy is usually considered the last resort when you have found no other solution to resolve your debt payments, and should only be considered after you have given all other options thorough contemplation. 

What is Insolvency? 

Many people fail to differentiate bankruptcy from insolvency because in both cases you must be financially insolvent to file for either process. However, if you are eligible to file for insolvency, it simply means you cannot make your payments at the current time and there are options to consider that could change your circumstances. Bankruptcy means there is no resolution that will result in you being able to pay your bills down the line. Insolvency, on the other hand, is the state in which your cash flow isn’t sufficient to pay off debts, and you need to find alternative methods to meet the required payments. 

Whether this is in regard to your personal finances or your company, this is a step people take before filing for bankruptcy. It’s time to look for sufficient resolutions. The people behind https://antonybatty.com/about-our-insolvency-practitioners/bournemouth-office/ explained that seeking legal advice can ensure that you recover from insolvency and turn your life or business back around. This can prevent you from handing over your assets, and you can discuss your options and get financial advice from attorneys to deter from filing for bankruptcy.

Options to Consider

You need to look into all your options before making a decision, which is why it’s best to consult with your legal trustee and practitioners to thoroughly understand the legal process and differentiate between insolvency and bankruptcy. With insolvency being solely your current financial state, you are given time to get your financial affairs in order and there are solutions to look into to rectify your situation and pay your bills over time. In any case, always leave bankruptcy as a last resort since this is a legal declaration stating your inability to pay off debts, and therefore, you will have to surrender your assets. Invariably, review all your options and then decide how you would like to proceed before taking any action.  

Both insolvency and bankruptcy are there for the purpose of resolving your financial issues whether personal or business. If you believe you can make some changes over time that will aid you in paying off your debt, you can file for insolvency. If you believe there’s no other way around your debt and no plan put in place will accumulate enough money to pay back your lenders, then you will have to resort to being declared bankrupt. 

In any case, always consult legal advisors as they will not only help you with the process, but they’ll make sure that you don’t make any decisions without clearly understanding all the options you have before you proceed. They will also help you curate an effective plan that will ensure your personal finances and business bounce back no matter how difficult times may be currently, and put your mind at ease that these hard financial times are temporary.