Credit, insolvency & bankruptcy - what is it all about?
http://www.accountingfacts.net/articles/1592/1/Credit-insolvency-amp-bankruptcy---what-is-it-all-about/Page1.html
john mce
John Mce writes for Hilton-Baird who offer free independent advice and has helped over 2,000 UK businesses raise extra capital including the use of invoice finance By john mce
Published on 01/14/2009
Insolvency is often confused with bankruptcy. It means not having enough cash to pay current bills and other financial obligations in the usual course of business.
Credit, insolvency & bankruptcy - what is it all about?
Insolvency is often confused with bankruptcy. It means not having enough cash to pay current bills and other financial obligations in the usual course of business.
Insolvency occurs when the total assets are greater than liabilities, if those assets cannot be sold for cash to meet debts. Insolvency is the stage before bankruptcy, when creditors can still try to recover what they are owed from the insolvent business or individual.
Under the Uniform Commercial Code, there are some additional rights which are invoked by companies deemed insolvent rather than bankrupt. Insolvency often leads to bankruptcy, and it is a matter of law, which must be authorised with a court proceeding. Bankruptcy protects a debtor from their creditors, but insolvency provides no safeguards for the debtor, therefore creditors may continue to attempt to recover the money they are owed.
Insolvency and bankruptcy can affect businesses and individuals. Individuals and businesses who fail to solve their insolvency will be forced into bankruptcy, receivership or liquidating their assets. If you find yourself or your business insolvent, you need to raise additional funds or try to negotiate your debt. Insolvency is the last chance saloon; the last chance you will get to sort out your own financial difficulties before you are declared bankrupt.
Options available for corporations to reverse their insolvent positions include selling shares, issuing bonds, making use of existing ports of credit or renegotiating loans. More creative options are selling assets to lease back or selling their own debts. Often small companies are bought up by larger ones even if they have financial troubles, if they have a skilled workforce, good reputation or product.
Individuals recovering from insolvency can remortgage their home, transfer credit accounts to banks with lower interest rates or take out a personal loan. Failing to find cash alternatives means an individual will have to declare themselves bankrupt to protect themselves from creditors. Without becoming bankrupt, this individual could be subject to visits from bailiffs.
Individuals trying to take control of their debt situation have to be careful; paying off one creditor could lead to legal proceedings from other creditors, if they believe they are showing preference to one creditor over another. Even paying debts to family members, friends or business associates can be seen as showing favour. Insolvency is an early warning signal of serious financial issues and unless dealt with swiftly and methodically, will lead to further financial difficulties and most likely bankruptcy.
Insolvency occurs when the total assets are greater than liabilities, if those assets cannot be sold for cash to meet debts. Insolvency is the stage before bankruptcy, when creditors can still try to recover what they are owed from the insolvent business or individual.
Under the Uniform Commercial Code, there are some additional rights which are invoked by companies deemed insolvent rather than bankrupt. Insolvency often leads to bankruptcy, and it is a matter of law, which must be authorised with a court proceeding. Bankruptcy protects a debtor from their creditors, but insolvency provides no safeguards for the debtor, therefore creditors may continue to attempt to recover the money they are owed.
Insolvency and bankruptcy can affect businesses and individuals. Individuals and businesses who fail to solve their insolvency will be forced into bankruptcy, receivership or liquidating their assets. If you find yourself or your business insolvent, you need to raise additional funds or try to negotiate your debt. Insolvency is the last chance saloon; the last chance you will get to sort out your own financial difficulties before you are declared bankrupt.
Options available for corporations to reverse their insolvent positions include selling shares, issuing bonds, making use of existing ports of credit or renegotiating loans. More creative options are selling assets to lease back or selling their own debts. Often small companies are bought up by larger ones even if they have financial troubles, if they have a skilled workforce, good reputation or product.
Individuals recovering from insolvency can remortgage their home, transfer credit accounts to banks with lower interest rates or take out a personal loan. Failing to find cash alternatives means an individual will have to declare themselves bankrupt to protect themselves from creditors. Without becoming bankrupt, this individual could be subject to visits from bailiffs.
Individuals trying to take control of their debt situation have to be careful; paying off one creditor could lead to legal proceedings from other creditors, if they believe they are showing preference to one creditor over another. Even paying debts to family members, friends or business associates can be seen as showing favour. Insolvency is an early warning signal of serious financial issues and unless dealt with swiftly and methodically, will lead to further financial difficulties and most likely bankruptcy.