What Is Insolvency?
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What Is Insolvency?
Insolvency is being in a state where a company or person cannot meet their financial duties. It can lead to bankruptcy proceedings. However, insolvency is not necessarily the same as bankruptcy. In contrast, bankruptcy is a legal proceeding designed to determine the extent of the party’s insolvency, and to find out possible remedies for the debt situation.
What Is Debt Restructuring?
In most cases for a business, insolvency will not trigger bankruptcy, but instead the company may look at alternative measures such as “debt restructuring.” This is where the company reorganizes their financial plan to aim towards business recovery or business turnaround (basically, getting out of debt and meeting financial responsibilities).
Debt restructuring may involve efforts such as cutting costs, working with financial experts, and beginning new campaigns. Restructuring may also involve negotiating with creditors to reduce debt payments or obtain debt cancellation.
What Types of Legal Issues Are Associated with Insolvency?
Insolvency is generally not considered a legal issue in and of itself; however, it is often a main factor in many different legal disputes and lawsuits. Also, being in a state of insolvency can frequently lead to legal disputes or issues. Some common legal issues are:
- Discharge of debt (i.e., disputes over whether a debt should be discharged or not)
- Effects on credit
- Effects on other financial aspects, such as alimony, child support, and garnishment of wages
- Other legal effects, such as effects on certain tax issues and gift-giving statutes
One of the main issues related to insolvency is that of debt collection. In many instances, a creditor may attempt to collect debts from a borrower who is insolvent. Depending on the situation, such as whether they have filed for bankruptcy or not, the person’s insolvency status can affect the legal claim in different ways.
Should I Hire a Lawyer for Help with Insolvency Issues?
Consumer or business insolvency can often be a very serious matter. You may need to hire a finance or bankruptcy attorney in your area if you need help with any debt or insolvency issues. Your lawyer can provide you with legal advice and guidance to help determine the best course for your or your business. Also, if you need to file a lawsuit or make an appearance in a court of law, your attorney will be able to provide representation during the process.
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Last Modified: 02-11-2015 03:32 PM PST
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