What Is The Difference Between Insolvency And Bankruptcy
Many people often mix up the terms “insolvency” and “bankruptcy,” assuming them to mean the same thing. However, these two words, though similar, actually have different meanings.
Quite simply, insolvency is a financial state of being –when you are unable to pay off your debts on time.
Bankruptcy, on the other hand, is a legal process that serves the purpose of resolving your insolvency.
What is the best solution - insolvency or bankruptcy?
An individual or company becomes insolvent when it cannot pay its lenders back on time. In general, this occurs when the entity’s cash flow in falls below its cash flow out. For individual debtors, this means that their incomes are too low for them to pay off their debts. For companies, this means that the money flow into the business plus and its assets are less than its liabilities.
Typically, those who become insolvent will take certain steps toward a resolution. One of the most common solutions for insolvency is bankruptcy.
Bankruptcy is a legal declaration of one’s inability to pay off debts. When one files for bankruptcy, the state take your assets and liabilities and releases you from the debts.
With an individual this is done by way of a Bankruptcy, a Debt Relief Notice(DRN), a Debt Settlement Arrangement (DSA) or Personal Insolvency Arrangement(PIA). With a company this takes the form of a liquidation.
Learn about declaring bankruptcy in Ireland.
If you are insolvent and believe that filing for bankruptcy is the best way to resolve this, then the Lanigan Clarke Solicitors Dublin and Letterkenny can help. To receive a free initial consultation and begin righting your finances today, contact our offices at 01 5313494 or 074 9129110.