Insolvency and bankruptcy are two terms that are often used interchangeably, and while they’re related and can coincide, they describe two distinct concepts. Both, however, describe difficult situations involving an inability to pay mounting debts, which is why it’s important to understand what distinguishes them whether you’re a business owner or a financially-savvy private individual. Take a look at the guide below to learn more.

What Is Insolvency?

Insolvency is a financial situation in which a person or business is unable to pay their bills on time. It’s usually a result of overspending, mismanagement of funds, or unexpected expenses. It can be caused by a variety of factors such as job loss, medical bills, or a drop in income. 

People or businesses in this situation may find themselves unable to meet their financial obligations, such as paying their creditors or their employees. In some cases, the person or business may be able to work out an arrangement with their creditors to pay off their debt over time.

What Is Bankruptcy?

Bankruptcy is a legal process in which a person or business can be relieved of their debt obligations. Filing for bankruptcy allows debtors to discharge their debts and be free of legal obligations to their creditors, effectively forming a solution to problems with insolvency. Bankruptcy is typically only used after a person or business has already tried to work out an arrangement with their creditors or has no other recourse left to manage their debts.

Whether you’re facing insolvency or thinking about filing for bankruptcy to cope with mounting debts, you can count on the experts at Kratovil Law Offices PLLC to provide top-quality legal advice and representation. Located in Charles Town, WV, and serving residents throughout Jefferson County, these experienced local lawyers can help individuals in a wide variety of financial and legal positions arrive at the most sustainable, manageable long-term solutions to their problems. Call (304) 728-7718 to book a consultation with a knowledgeable attorney, and visit their website to learn more about their services.