Although people often use the terms "insolvency" and "bankruptcy" interchangeably, they refer to two entirely different scenarios. The easiest way to differentiate between the two is to remember that insolvency is a prerequisite for bankruptcy. As such, you can be insolvent without being bankrupt, but you can't be bankrupt without first becoming insolvent. For more clarification, review the guide below.

Insolvency

An individual, business, or entity is insolvent when it can no longer make the minimum payments on its debts. In other words, insolvency occurs when your expenses exceed your income. While this will inevitably cause a considerable amount of stress, there are several solutions.

For example, if you're trying to pay down multiple credit cards, consolidating them into a single loan with a lower interest rate could make your situation more manageable. However, if you've accumulated more debt than you can ever reasonably pay off, bankruptcy may be a better approach.

Bankruptcy

Bankruptcy refers to a legal proceeding by which individuals and businesses can discharge applicable debts. If you have virtually no disposable income, you may qualify for chapter 7 bankruptcy, which liquidates your nonexempt assets, such as extra vehicles and artwork, to pay back creditors. Any dischargeable debts that remain after liquidation are then eliminated.

If you have some disposable income but not enough to pay back your debts, you might qualify for chapter 13 bankruptcy. This reorganizes your various debts, so you only have to make a single monthly payment. After three to five years, applicable debts that remain are discharged.

If you’re insolvent, turn to Cecil, Cecil & Barker, P.A. to explore your debt relief options. Founded in 1993 in High Point, NC, this practice is proud to help clients regain their financial footing. Whether you want to pursue a chapter 7 or chapter 13 discharge, you can turn to these compassionate attorneys for personalized and attentive guidance. To request a free financial analysis, reach out on their website or call (336) 883-8383.