What is Insolvency and can it happen to you?
What is insolvency?
Insolvency is a financial state where you simply can not afford to pay your financial commitments. Close to 70% of Australians said they are experiencing financial distress. Of that near 70%, thousands are experiencing severe debt. When your debt gets to the point when you can no longer make the repayments when they fall due, you enter a state of insolvency.
Insolvency means you are in a financial position where you don’t have enough money to pay your debts when they fall due. There are two types of insolvency, cash-flow insolvency and balance sheet insolvency. Cash-flow insolvency is when your money won’t cover your debts but you may have enough equity in assets to cover them. Balance-sheet insolvency is when you neither have enough money and the value of your assets isn’t high enough to cover your liabilities (debts).
Insolvency versus bankruptcy. There is a difference
Being in a state of Insolvency and having to declare bankruptcy are often confused and seen as one in the same. However insolvency and bankruptcy, while related, are two very different things. Insolvency is defined as a financial condition and is a word used to describe a position you are in. Bankruptcy is a legal procedure which arises if an insolvent person cannot find a way to improve their situation.
There are plenty of solutions an insolvent person can pursue before resorting to declaring bankruptcy. Debt Rescue is a personal debt management company which specialises in providing these solutions.
Positive Solutions to your bad debt
As soon as you become insolvent you must take immediate action to rectify your financial situation. This can mean generating cash by getting another job or selling unused household items, cutting back on living expenses or consolidating or refinancing your current loans and debts.
If your debt is more severe, Debt Rescue might suggest you enter a Debtstroyer Agreement. This allows the experienced case managers at Debt Rescue to look at your personal finances to find out how much you can afford to repay. From this information, they will negotiate with your creditors to develop an informal agreement which allows you more time and space to pay off a negotiated amount from your debts.
If your creditors don’t agree to the Debtstroyer Agreement, Debt Rescue could then propose a formal Debt Agreement. While this is considered a form of bankruptcy, it won’t have the same restrictions and ramifications, allowing you a little more freedom.
Take action now to avoid being insolvent
If you think you are heading down the path to insolvency, call Debt Rescue today and Talk to an Aussie Who Cares. They can help you on the road to recovery before bankruptcy becomes your only option.