difficult times call for drastic measures. Acting swiftly can make all the difference.

Insolvency is generally defined as a financial state in which a company can no longer pay its bills and other obligations on time. Insolvency occurs when liabilities or debts exceed assets and cash flow. Once a company becomes insolvent, it must take immediate action to generate cash and settle or renegotiate current debts. Companies which cannot successfully pull themselves out of insolvency often face bankruptcy proceedings, receivership or liquidation of all assets.

Insolvency is commonly confused with bankruptcy, and the two concepts are not dissimilar. Both insolvency and bankruptcy deal with liabilities exceeding assets, but insolvency is a state of being and bankruptcy is a matter of law. Companies can be insolvent but not legally bankrupt. Insolvency can lead to bankruptcy, but the condition may also be temporary and fixable without legal protection from creditor.

Bankruptcy means that your financial affairs are administered by an official receiver or a Trustee appointed at the creditors meeting or otherwise. In other words, a Trustee controls all that you own including your house. A Trustee also administers all that you owe. Essentially, the duty of a Trustee is to sell all your permitted assets (this can include your home contents, primarily those of high value) and use the money to pay as much as possible to your various creditors who are the people that you owe money to.

What is the diference between insolvancy and bankruptcy?
Although quite similar there is a significant difference between the two – Insolvency is described as either having more debts than assets or the preferred definition is not being able to pay your debts as they fall due.

Bankruptcy is the state you’re in after the judge has made a bankruptcy order against you. You have to be insolvent to be made bankrupt but you do not have to be bankrupt to be insolvent.

Alternatives to bankruptcy?
Alternatives to facing bankruptcy include either debt consolidation, debt management plans or the government backed solution – an IVA (Individual Voluntary Arrangement) An IVA provides you with a solution that is NOT BANKRUPTCY. It is a legally binding agreement between yourself and the creditors whom you owe money to.

To qualify for an IVA, you need to have debts over £15,000, have debts with three different companies and you must be in receipt of a regular income. If you can match this criteria, then an IVA can save you money and the embarrassment of facing bankruptcy, by providing an alternative way to pay off your debts and also by potential writing off what you cannot afford.

What is the difference between bankruptcy and an IVA?
Fundamentally they are both financial tools designed to help resolve difficult financial situations. Outside of this similar characteristic they are both critically different.

Bankruptcy is an application to the court to be discharged or rid of your debts. That comes with a price however. The price paid is both a substantial amount of up-front court fees that will need to be paid, loss of control of your assets and the reality that you will have been made bankrupt, a situation that can significantly impact your future credit file, ability to get credit and some jobs.

IVA, or Individual Voluntary Arrangement, on the other hand is an incredibly effective way to eliminate debt problems, without the pain and stigma of bankruptcy. The IVA allows debtors to come to a binding agreement with their creditors, reduce the total amount owed, make affordable monthly payments, maintain control of homes and other property, and does not impact job status.

All that being said, bankruptcy is an appropriate solution in situations where the debtor is unable to afford to make reasonable reduced monthly payments. Sometimes bankruptcy is the best tool to use and should not be discounted simply because it is bankruptcy.

Free debt advice:

For a confidential debt advice service, handles by professional debt solution professionals, please complete the simple referral form opposite. A debt advisor will call you at a time to suit you and fully asses your financial circumstances. They will then assist you in finding the best solution for your situation.

FOR ILLUSTRATIVE PURPOSES ONLY