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The difference between Bankrupctcy and Insolvency

The difference between Bankruptcy and Insolvency

The terms bankruptcy and insolvency are often confused or misinterpreted.


The difference between Bankruptcy and Insolvency
The purpose of this article is to clarify the main differences between the two in order to provide easy to understand information which will help you weigh up some of the options for dealing with your debt in a way that bests suits your own circumstances.

What is Bankruptcy?

Bankruptcy is a legal option for dealing with your debts if you have no realistic chance of being able to pay them back.

What is Insolvency?

Insolvency is the term used when your assets are insufficient to be able to cover all your debts or when you are unable to pay back your borrowing as and when payments are due.
Bankruptcy in Brief

Generally speaking, bankruptcy is an option that’s used as a last resort once all other potential avenues have been exhausted. Bankruptcy is not a soft option and comes with a number of legally binding disadvantages that you should bear in mind before considering this route:
  • Your bankruptcy will remain on your credit report for at least 6 years
  • Details of your bankruptcy will be published in the press and you may have to attend court to explain your financial situation
  • You’ll have to give up the equity in any property you own which could mean losing your home
  • You may have to make monthly payments towards your debt for 3 years

Information on Insolvency

If you find that you’re unable to meet your monthly financial commitments when they fall due then technically you’re considered to be insolvent. Insolvency is not a legal process, it’s a term used to describe this financial difficulty. Being insolvent doesn’t necessarily mean you’ll end up bankrupt and it’s important to take positive action if you find that you can no longer make your monthly credit repayments.
 
There are a number of ways in which Debt1 can help you overcome insolvency:
  • Debt consolidation loan
  • Individual Voluntary Arrangement (IVA)

To summarise, bankruptcy is the legal process at the worst end of the debt solution spectrum and insolvency is a financial state that you may be able to address if you act quickly enough. Give us a call today on 0800 043 4747 to find out more...