Default, Insolvent, or Bankrupt?

Although bankruptcy is possibly the most well-known stage of debt resolution, there are other stages between initial problems with debt to the filing of bankruptcy papers. Before a company or a person can be declared bankrupt, they might undergo various stages of difficulty with debts. Understanding the differences between these states can be important for anyone struggling with debt.

Initial difficulty paying debt can result in a person being in default. Default essentially means that a person has simply not made payments to a creditor that the person (or company) is obligated to make. Failing to make a mortgage payment, for example, would be defaulting on your mortgage. This is often a precursor to filing for bankruptcy but does not necessarily have to precede it.

Insolvency (being insolvent) is a legal term for the state of being unable to pay for debts. You can default on a debt even if you have money, simply by failing to make the payment. Someone who is insolvent, in contrast, is legally declared unable to pay their debts. This is a very common state preceding bankruptcy.

When debts have piled up to the point of insolvency, it often proves a good idea to file for bankruptcy. Essentially being bankrupt means being under court supervision during the resolution of debts. Bankruptcy protection provides individuals and corporations a route to recovery from excessive debt and can help them gain control over their financial well-being.

Contact Us

The Boca Raton bankruptcy lawyers of Eric N. Klein & Associates, PA have the experience to help you decide whether bankruptcy is right for you. For more information, contact us today at 561-353-2800.