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What is the Difference between Insolvency and Bankruptcy?

Written by Posted On Saturday, 12 August 2017 23:05

Insolvency may be a foreign concept when your business is going well. However, sometimes things happen, and your debts may get out of your control. What does this mean for you and your company? The first to find a solution is to understand insolvency.

Insolvency is the financial state in which a company or individual is unable to pay its debts and other bills. A person or business is insolvent when their total debts are more than the value of their assets. It can include land, houses, cars, bank accounts, bonds, and stocks. It is also called bankruptcy. There are two types of business insolvency, and an insolvency accountant can help you sort things out.

Cash flow solvency happens when your company is unable to pay debts once the due date comes and goes. The second type is balance sheet insolvency occurs when a company has negative net assets, and the total debt surpasses total assets. Cash flow insolvency means that a company holds non-cash (or non-liquid) assets are worth more than liabilities.

However, insolvency is not synonymous with bankruptcy. Insolvency is a state of economic distress, while bankruptcy is a court order that outlines how obligations will be met, whether on a repayment schedule or through business liquidation. An individual or company can be considered insolvent and not be in bankruptcy. If a person or company's insolvency is something that is only temporary and can resolve through careful planning, bankruptcy does not enter into it. Once a situation becomes dangerous, insolvency can lead to bankruptcy.

A company may be able to come back from insolvency by making simple changes, although they may still be significant changes. Cutting costs, selling assets, borrowing money, being bought out by a larger company, and renegotiating debt are all ways for businesses to help themselves out of insolvency.

Taking control of their financials and making smarter decisions will help them avoid bankruptcy. A court hearing can declare a business or individual insolvent. They are also able to petition for this order as a request for personal bankruptcy protection. One dark detail to avoid is having your debt sent to a debt collector – that is never a good sign.

For qualified, knowledgeable, and experienced Wakefield insolvency practitioners or others in your area, do your research. Ask around, see what other businesses have done to get themselves out of this sticky situation. It is possible to get your company up and running again, but only with a bit of hard work.

Listing Additional Info

  • State: Alabama
  • Address: ..
  • City: Guiseley, Leeds
  • Zipcode: LS20 9AT
  • SOLD: no
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