What’s Insolvency? Here’s a Quick Overview
If you’re insolvent, that means you have to file for bankruptcy, right? Not exactly. Insolvency can be a little confusing. But, we’ve got you covered.
Today, we go over the basics of insolvency and the options you have for financial assistance.
Insolvency v Bankruptcy
Insolvency refers to a financial state of economic hardship. Bankruptcy is an order that decides how debt will be paid.
A business or individual can be insolvent without being bankrupt. This is especially the case when the insolvency is temporary or rectifiable.
Insolvency can lead to bankruptcy if a company or individual is unable to correct the financial situation.
What To Do If You’re Insolvent
If you find yourself in financial distress, you should contact a debt management counsellor. They will help you negotiate a settlement to repay your debt.
You can also try to work out a payment plan with your creditors without the help of a debt counsellor.
For example, if you owe a large credit card debt, inquire about what type of repayment options your credit card company has.
For struggling businesses, there is an option to restructure debt. This model follows the US-style Chapter 11 bankruptcy process.
Here’s how debt restructuring works:
● The owner of a small business will appoint a debt restructuring professional to see whether they are eligible for the process.
● If the small business is eligible, the business owner has 20 days to prepare a restructuring plan. The plan must be approved and certified by the debt professional.
● The debt restructuring plan is made available for the creditors. They are given 15 days to vote to approve or reject the plan.
● If the plan is approved by 50 per cent of creditors, then the plan begins.
If You’re Insolvent, You Have Options
Being insolvent doesn’t have to end in financial disaster. It is possible to get a grapple on your debt.
Our team of professionals are here to help you create a plan to correct your insolvency. Contact us today for a consultation.