In everyday conversation, the words “insolvency” and “bankruptcy” are often used interchangeably to mean a person or company can’t meet their financial obligations. While the two words are closely related, one actually refers to your financial situation, while the other describes debt relief options that can help you get back on track. Understanding the difference can reduce confusion and help you decide if bankruptcy is right for you.
What Is Insolvency?
In common parlance, insolvency is the legal term for being broke. A person or entity is considered insolvent when they can’t meet their financial obligations or pay back lenders on time. This might occur because of a job loss, a medical emergency resulting in bills you can’t pay, or divorce.
Unfortunately, being insolvent doesn’t prevent lenders from taking steps to recover the money you owe, such as filing lawsuits, repossessing assets, and garnishing wages. In these cases, filing bankruptcy may provide an avenue for getting your feet back under you.
What Is Bankruptcy?
Bankruptcy is a debt relief tool designed to help insolvent borrowers get out from under unmanageable debt. Under a Chapter 7 bankruptcy, you can completely discharge most unsecured debt in exchange for surrendering some of your assets to the trustee.
Borrowers with sufficient income and assets may opt for a Chapter 13 bankruptcy instead, which allows you to make up past due payments on some debts and discharge others. Chapter 13 is a popular option for borrowers who do not want to lose their house or car, or those who aren’t yet completely insolvent.
If you’re facing a financial problem, let Greg Dunn, Bankruptcy and Debt Relief Attorney help blast your debts away. As one of Honolulu’s most experienced bankruptcy lawyers, he’s helped over 12,000 families throughout Hawaii regain their financial freedom. Visit his website to learn more about the benefits of bankruptcy, get more financial tips on Facebook, or call (808) 524-4529 to start exploring your debt relief options today.