What is Insolvency?
Insolvency is simply where you are unable to pay back your debts when the payment is requested and have no way of obtaining money. Unlike bankruptcy, insolvency is not a legal process and merely describes the debt and financial problems that have occurred. It is a term that is also often used in relation to a business that is in debt and cannot afford to keep going.
If you are insolvent then it is important to remember that you do not have to declare bankruptcy. These days there are a number of other methods for taking control of your finances and paying your debts. You should however make sure that you tackle your debts now whilst you have the chance before bankruptcy does become an issue.
What is Bankruptcy?
Bankruptcy is a way of dealing with any debts that you may have if you are unable to pay them back. It is generally seen as the last resort as it will mean selling off any assets that you have and does come with a number of possible consequences to your career and your credit rating. Generally it will be your creditors that petition for your bankruptcy but you may also do this yourself if you wish.
It is important to remember that bankruptcy is not an easy way out as it can have some detrimental effects so you should keep this in mind if you are thinking of declaring yourself bankrupt. By being declared bankrupt you will mark your credit rating for around 6 years. This means that if you apply for credit you will most likely be declined or face high repayments.
You will not be able to keep your bankruptcy a secret and should expect the details to be listed in your local newspaper which can cause embarrassment. Any equity that you have in your home could be used by the Court to go towards your bankruptcy and there is a risk that you could lose your home.