In our current economic climate, even businesses who follow a trustworthy model and put in hard work may be at risk of becoming insolvent. When a business is not able to generate the profits they need in order to pay back their debts in time, they are said to be insolvent. However, insolvency does not just apply to businesses, as an individual can also face insolvency in their personal finances as well. Some people equate insolvency with bankruptcy, but they are actually not the same thing. Bankruptcy is just one of the potential outcomes of insolvency. If a business owner or individual finds themselves insolvent, they may consider filing for bankruptcy, or they may decide to attempt to renegotiate their debt. It all depends on the situation of the individual or business and the flexibility of creditors. In some cases, businesses who renegotiate debt or declare bankruptcy can pay back their debt while still remaining open to the public.
Types of Insolvency
Unfortunately, the current economic situation has lead a number of businesses to become insolvent. Efforts to help businesses increase their customer base, such as the building of public transportation systems like the Phoenix Metro light-rail, have had some success in increasing foot-traffic in entertainment districts and shopping areas. However, businesses still face a number of challenges. Across the U.S., thousands of business owners and individuals are faced with increasing difficulty when it comes to paying back their business and personal expenses, leaving them with tough choices to make. The two types of insolvency businesses face include:
>Cash flow insolvency
>Balance sheet insolvency
When a business is balance sheet insolvent, it means they currently hold more liabilities than assets. When a business is said to have cash flow insolvency, it means that they do not have enough cash to provide payment for debts when they are due. In these types of situations, a business may need to consider filing for bankruptcy. Businesses may file for Chapter 11 bankruptcy, also known as business reorganization, or they can file for Chapter 7 bankruptcy, which is referred to as liquidation. When a business is more likely to not be able to keep their doors open, chapter 7 bankruptcy is the more suitable option, while chapter 11 bankruptcy is available for businesses who may be able to reorganize their debt and remain open while working to pay it off.
While declaring bankruptcy may seem like the only answer to insolvency, there are actually some other options that should be explored as well. By speaking with an experienced bankruptcy attorney, insolvent business owners may be able to learn more about debt negotiation. If debt negotiation is an option that creditors are willing to consider, it could result in:
>Lesser monthly payments
>Due date extensions
Dealing with the perils of insolvency is never easy. However, many businesses are finding that the guidance and representation of a bankruptcy attorney can be incredibly beneficial. Bankruptcy attorneys are useful for a number of different situations. Some of the issues they can address include how to fight foreclosure, how to declare personal bankruptcy, how to see past bankruptcy myths, and how to renegotiate your debt.