What is Insolvency on a Consumer Level?

Today, as a result of the economy’s current state, insolvency has become more frequent for individuals and companies. Many Americans are filing insolvency. Insolvency is the financial state that typically comes before bankruptcy. Bankruptcy occurs when a person or business becomes insolvent; it is a legal proceeding and declaration. More often than not, debt is a part of life, but an excess of it can sometimes make it difficult to enjoy each day.

Insolvency in General

Insolvency is a person’s inability to pay debts when they become due. Insolvency describes a condition where a person has more debts (liabilities) than assets (that can be used to pay those debts).

Frequently, insolvency refers to businesses and their inability to repay their debts. Again, insolvency is not the same as bankruptcy; instead, bankruptcy occurs when a court determines a person or company is insolvent and then issues orders to resolve the insolvency. Even though insolvency is frequently used when discussing a business’s financial state, it can also describe an individual’s financial status.

Consumers and Insolvency: Potential Avenues

For those consumers facing insolvency, there are several options to pursue when trying to relieve the weight of insolvency.  Individuals may seek relief from a debt settlement company. Before utilizing this option, it is important to examine its pros and cons. When considering debt settlement companies, first look and see if your monthly income has room to pay this type of fee after paying your monthly living expenses. Try to find an honest debt settlement company with fees proportionate to the services the company is providing.  In some cases, debt settlement companies have been known to charge high and outrageous fees, so be weary and question your fees.  Also, many of these companies have high drop out rates, meaning consumers drop out before the company reaches an agreement with the creditors.

Aside from using a debt settlement company, bankruptcy is another potential solution for insolvency. Under the Uniform Commercial Code (UCC), individuals are insolvent when they have stopped paying all debts in the “ordinary course of business”, cannot pay the debts when due, or are insolvent as defined by the United States Bankruptcy Code. The United States Bankruptcy Code protects individuals (consumers) and businesses from their creditors and attempts to balance the debtor’s interest against the creditors’ interests.

Importance of Speaking with an Attorney

If you would like more information regarding insolvency, bankruptcy, or debt resolution in general, contact a qualified attorney in your area.