Difference Between Insolvency And Bankruptcy

Insolvency and bankruptcy are not the same thing, although they have been confused very often. In addition, many people used them as synonyms, which is also wrong. It would not be a pleasant thing to experience the difference in your own case, would it? However, it would be definitely a useful thing to know something more about how to make the distinction between these two negative financial phenomena. There are several moments which enable us to see clearly where insolvency differs from bankruptcy and vice versa.

The Time and The Frequency

When it comes the insolvency we can say freely that all of us have experienced it and we still do. It is important to emphasize that not every case of insolvency is serious and worth worrying about. When we borrow the money to buy cigarettes we are experiencing the insolvency. When we return what we owe the insolvent situation is prevailed. In one single month we can go in and out of insolvency several times. Every situation where we lack the money for a certain purpose has a potential of becoming the insolvency case. However, only the situations where the insolvency is long in its duration and without an obvious solution is dangerous including the increased high financial risk for your status.

We can formulate these claims in a more suitable way: Every case of money shortage is not necessarily an insolvency, just like every case of insolvency is not necessarily a bankruptcy. On the other side when it comes to the frequency what we have said for the insolvency cannot be applied to the bankruptcy itself. While the insolvency can occur several times, the bankruptcy in the absolute majority of the cases occurs only once. Even that one case is often more than enough for all the people who had experienced it. In addition, the insolvency can afford the luxury of pauses, which is not the case for the bankruptcy as a strictly regulated and toward only one direction determined process. When it comes to the duration, we can more influence the insolvency, than the bankruptcy. Very often we determine how long the insolvency will last more easily than we can do or say the same for the bankruptcy.
The Form and The Privacy

When it comes to the form we have to emphasize strongly and clearly: insolvency is a financial condition, while the bankruptcy is a legal process. Additionally, it would definitely not be a mistake to say that the insolvency is a private financial condition, while the bankruptcy is an official legal procedure. The shortage of money is your private problem as long as this problem does not influence other people’s financial interests. On the other side, when you declare bankruptcy no matter how you feel about it you will not be able to hide that unpleasant fact.

During bankruptcy the involvement of the courts and creditors is the regular thing. When dealing with your current insolvency problem the introduction of other parties is strictly voluntary and determined according to your sole discretion right. To be insolvent and not yet declaring bankruptcy means that you still have the financial situation under control. The closer you get to the bankruptcy, farther you go away from your privacy and financial sovereignty.

The Consequences and The Solutions

The consequences of the insolvency at the beginning of the scale of seriousness can be a personal frustration for not buying what you have planned or a bad feeling of not having a shiny financial situation at the moment. As we move forward on the scale the more serious and troubling it gets. At the end of it are the door to the bankruptcy. The consequences in the real sense cannot even be compared between these two cases of financial troubles. The bankruptcy is a very serious thing with very serious consequences. One of the most severe among them is definitely the financial stigmatization. This is exactly what makes the return in the regular financial waters of an ex-bankrupt so difficult. On the other side, as long as you are able to carefully and discretely deal with your insolvency problem all of the banking service doors will be wide open for you. Unfortunately, this is not the case with the bankruptcy.

The difference between the insolvency and the bankruptcy exceeds the need for making only the terminological distinction. This can give you a more profound view of your current financial situation. In addition, the next time you hear that someone is insolvent or bankrupt, you will know what to think and eventually how to help. The worst thing you could have possibly done without knowing the difference is to think and treat an insolent man as already been bankrupt. Remember that the insolvency contains the greater percentage of hope compared to the bankruptcy.

Andy Gorton is the author and editor of the Bankruptcy Clinic

Andy Gorton – who has written posts on Bankruptcy Clinic Blog.

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