Insolvency and Bankruptcy explained
Date posted: January 21, 2014 by Paddy Byrne
Insolvency and Bankruptcy are essentially both terms describing the position of a person or company that is no longer able to pay their debts. Insolvency is normally used when referring to businesses, and bankruptcy vavrto individuals, however there are many times when the terms are used varyingly in both contexts.
What is Insolvency?
Insolvency is a more general term, and Insolvency Practitioners deal with both businesses and individuals who have unmanageable debt. If you as an individual have personal debt that you can no longer manage, you may end up being declared legally bankrupt, although there are a series of measures you can use to avoid this. An IP can help you to navigate and use these measures.
What is Bankruptcy?
If a person is declared bankrupt, this is sometimes the result of them being pursued through the court by their creditors, but in most cases is initiated voluntarily by the person themselves. When a person is bankrupt, this is a status that applies to them for a set period of time, sometimes months and sometimes years, depending on the situation.
Being bankrupt means that your assets may be sold to pay your creditors, and essentially means that you lose a certain degree of control over your own financial matters for the time being. During the term that bankruptcy applies, you will not be able to get credit without informing potential creditors that you are bankrupt. Naturally this causes serious restrictions on the ability to gain credit during this term. People who practise in certain professions also face restrictions within their work life if they are declared bankrupt.
Alternatives to Bankruptcy
If you are unable to make your debt payments, there may be alternatives to bankruptcy that are available to you. For example, Individual Voluntary Arrangements are often used as a tool to avoid bankruptcy, and give people the ability to get back on top of their debts.
An IP will be able to advise you as to the suitability of an IVA to your case, and can also process and administer it for you. If you do propose an IVA and it is accepted, so long as you stick to the agreement, your debts will be settled when the IVA term is over. There are a number of reasons that this is preferable to bankruptcy, not the least of which is the fact that your credit rating is significantly less damaged in the long term, allowing you to work on repairing it once the IVA is complete.