Insolvency

Frequently when people speak of bankruptcy they really are talking about insolvency. The two concepts are not wholly separate from each other but are not the same thing either. Insolvency is a much like a state of being whereas bankruptcy is a matter of law.

A person, company, or other entity is said to be insolvent when it can’t meet the financial obligations it owes to a lender or lenders as a debt becomes due, or needs to be paid. This is frequently true when a person’s liabilities, or debts, exceed his or her income or cash flow. When a person is insolvent, frequently insolvency proceedings against that person are the next step. These proceedings include legal actions and assets or holdings that can be sold off, or liquidated, to pay off the debts owed.

Bankruptcy is not always the next step for an insolvent person. If the person can raise cash through some way, he or she can become solvent again. In addition, prior to legal insolvency actions are taken, a creditor is likely to meet with a debtor to create some sort of informal arrangement for repayment. The informal agreement can be an alternative payment arrangement or restructuring the entire loan.

Causes of insolvency include poor cash management, reduced income or cash inflow, or increases in the number of cash expenses. As this shows, not all individuals who are insolvent are the root of their own problem. A person may take out a loan assuming that he or she will have X amount of income from an investment. If the investment does not return what it was promised to return, that person may become insolvent.

Contact a Boston Bankruptcy Attorney

If you are facing insolvency proceedings or are in a dire financial situation and considering bankruptcy, contact the Boston bankruptcy attorneys of Joshua Spirn & Associates at 1-800-975-5346 to discuss options for becoming solvent and ways to get out of debt.