The terms bankruptcy and insolvency are often interchanged, but that is a mistake.

They don’t mean the same thing. Bankruptcy involves a person or business liquidating assets through legal means to pay some debts and to eliminate others.

There are several types of bankruptcy someone can apply for. It depends on their circumstances and where they reside.

Insolvency means the debts of someone or a business are currently more than their assets. For example, a new business may owe a great deal for the building and startup costs.

They aren’t making a profit yet but they are still functional. Such a business may be in the process of saving the business by reorganizing.

One of the ways they do this is to discuss the debt they owe with each creditor.

The creditors may extend the terms or suspend payments for a given amount of time. Others may reduce interest or even reduce the balance due.

The goal is to get the debt to a manageable amount where they can knock it out and start making money again.

Insolvency Legal Efforts

When the efforts on their own aren’t successful or they aren’t enough, the legal side of it may be necessary. A person or business can file for insolvency through the courts.

This is a chance to legally reduce debts or to restructure them. Not everyone qualifies for bankruptcy or wants that on their record. This may be a better choice to consider.

Input with Legal Bankruptcy or Legal Insolvency

From a legal point of view, there is very little input from the person or business with legal bankruptcy.

The law determines what will be paid and how it will be paid and they must comply with those requirements.

Legal solvency is the opposite as the person or business comes to the court with a plan of action. They will accept it, deny it, or request modifications before they can approve it.