Generally, people confuse insolvency with bankruptcy; however, both the terms disclose a different meaning from each other. In simple terms, it will not be wrong to say that if insolvency is a problem, then bankruptcy is a solution to it.
What is insolvency?
Insolvency is a term used to define a situation in which a person becomes unable to pay the due debts charged. It corresponds to a condition when a person’s debts become more than his assets, then it is known as an insolvency.
How to deal with it?
Dealing with insolvency is not a cakewalk, but still, you have plenty of options, such as increasing your paychecks anyhow or borrowing money to pay the debts. Another solution is to negotiate with the creditors and pay lesser debts than you owe.
Bankruptcy: An ultimate solution
Taking debts to pay debts is not a brilliant idea at all because the resultant condition keeps you in the same position where you were. But, bankruptcy is the master solution for this issue. Bankruptcy is typically a court order that lends a big hand to the debtor to pay the debts to the creditors and get rid of insolvency. This bankruptcy process involves selling assets of the debtors also, but it is almost clear all the debts that are unpaid yet.
Reasons for insolvency:
Insolvency can occur due to many reasons, among which the following are a few most common and major ones.
- Divorce cases
- Medical bills
- Reduction in salary
- Losing a job
- Mismanagement of finances
Keeping these points in mind, you can save yourself from being insolvent in the future. Therefore, you should pay keen attention to insolvency causes and try your best to avoid the same.
If you would like more information about bankruptcy, contact a Hidalgo County bankruptcy attorney.