What's The Difference Between Insolvency And Declaring Bankruptcy?


Posted December 7, 2021 by helming77

The terms insolvency and bankruptcy are words often heard when an entity deals with excessive debts. While many people often interchange them, they don’t mean the same.

 
When you’re running a business, it’s almost inevitable to incur debt at some point. This isn’t a bad thing: A good debt is a debt that can fund your operations and any other expenditure so that you can hit a profit enough to get your debt and its interest repaid. But when you incur too much debt that you can’t manage to repay, it’s high time to get help from insolvency practitioners in Glasgow.

The terms insolvency and bankruptcy are words often heard when an entity deals with excessive debts. While many people often interchange them, they don’t mean the same.

What is Insolvency?

In simplest terms, insolvency is a financial state in which an individual or a business becomes incapacitated to pay their debts. Over the years, insolvency practitioners Glasgow have seen various reasons why entities become insolvent, but the two most common are financial mismanagement and unwise use of credit.

There are two different types of insolvency:

Balance-sheet insolvency. This type of insolvency happens when the value of your debts gets bigger than the value of your assets. If you have an adequate amount of cash, you can use it to repay the said debts.

Cash-flow insolvency. When you run out of cash to pay your financial liabilities, you become cash-flow insolvent. This can happen once you try to address balance-sheet insolvency and you got your cash depleted in the process — or became unable to borrow funds anymore from creditors and other money-lending entities.

How Does it Differ from Bankruptcy?

While insolvency is a state of financial distress, bankruptcy is a legal process. While it’s one resolution for insolvency, not all insolvent entities end up declaring bankruptcy.

When you file for bankruptcy, a licensed professional will be designated to liquidate your assets and use your earnings from that to repay your debts. The assigned trustee will also reach out to your lenders and do a proper investigation of your situation.

Take note that bankruptcy is a long process (it can take up to 21 months) and requires the oversight of a court. During the process, you’ll also undergo credit counselling sessions.

Apart from the tediousness of bankruptcy, it can also leave huge damage on your credit rating — hindering you to borrow funds for years.

What Can You Do if You’re Insolvent?

Dealing with excessive debts can be really overwhelming. Negotiating with creditors isn’t exactly an easy and pleasant task either. If your business has become insolvent, it’s best to consult with a debt management expert.

Debt counsellors and insolvency practitioners can give unbiased advice on how you should address your financial woes. They do this by reviewing your financial documents. They also assist in discussing and arriving at amenable terms with your creditors — and in finding ways to increase revenue — so you can prevent filing a bankruptcy.

Get Help from Top Insolvency Practitioners in Glasgow

Is your business going through rough times? If you’re unable to pay your debts, Middlebrooks can help you overcome financial difficulties and deal with the rather complicated processes of liquidation, company restructuring, and more.

Get sound pieces of financial advice and get help from the best insolvency practitioners Glasgow. Contact them at 0141 465 6429. For more details, visit https://www.middlebrooksadvice.com/about-middlebrooks/insolvency-practitioners-glasgow.
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Last Updated December 7, 2021