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18 May 2012 what is the difference between INSOLVENCY AND BANKRUPTCY?

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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18 May 2012 What is Insolvency?
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When a person in business or in partnership (with unlimited liability) is unable to pay their debts when they become due, they are said to be insolvent. As soon as someone is unable to pay their debts they are technically insolvent, even if they have more assets than liabilities. Unless they correct the situation that insolvency will move on to either bankruptcy or liquidation, depending on whether it is a company or not. Insolvency is often referred to as the temporary state of bankruptcy, whereas bankruptcy is a permanent state of insolvency.

Difference between Insolvency and bankruptcy
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Insolvency is the inability to pay your debts when they fall due. bankruptcy is the formal state when a person cannot pay their debts and declares bankruptcy. bankruptcy does not apply to companies, but only to individuals. A company goes into liquidation rather than bankruptcy.

bankruptcy involves court proceedings, where the person who becomes bankrupt loses all his/her assets. Those assets are taken over by a court official known as the official assignee whose job is to collect the assets and realise them for cash, which is then used to pay off the outstanding bills.

in view of above,

Insolvency is a financial/accounting term that means one has liabilities or debts in excess of their assets. Obviously it is an important consideration in financial analysis and credit matters. Many people or companies can be insolvent without an outward signs, or even as part of their plan...a stat up for example frequently is but it's plan is to generate income in the future, as it markets it's product, and have more assets than debt.

Bankruptcy is a legal term and actually a legal process. To be bankrupt one needs to have filed with the Bankruptcy Court in India the required documents, under the appropriate program or Law, and be declared bankrupt. At that point a number of legal things occur which have to do with the court providing financial protection and taking over the affairs .

More info.Also read:

https://www.caclubindia.com/forum/difference-between-insolvency-and-bankruptcy-73889.asp

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