Difference Between Insolvency and Bankruptcy | LawWiser
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Difference Between #Insolvency and #Bankruptcy | LawWiser
Find the difference between Insolvency and Bankruptcy explained in simple language.
To learn more about similar legal terms subscribe to our channel and look forward to our latest videos.
What is the difference between insolvency and bankruptcy? Let's understand it with an example.
Insolvency occurs when an individual or company is unable to pay off their debts as they become due. For instance, let's say Mr. Sharma has a business of manufacturing garments. Due to a lack of orders and financial mismanagement, his business incurs losses, and he is unable to pay his suppliers and employees on time. This situation leads to an increase in his liabilities, exceeding his assets, which means he is insolvent.
To tackle this situation, Mr. Sharma may try to negotiate with his creditors to come up with a repayment plan or restructure his debts. However, if negotiations fail, he may need to file for bankruptcy.
Bankruptcy is a legal process that allows individuals or companies to discharge or restructure their debts. For instance, if Mr. Sharma's debt becomes unmanageable and he is unable to pay off his creditors, he can file for bankruptcy under the Insolvency and Bankruptcy Code, 2016. The bankruptcy process involves liquidating the debtor's assets to pay off the creditors or restructuring the debts to allow the debtor to repay over time.
In summary, insolvency occurs when a person or company is unable to pay off their debts, while bankruptcy is a legal process that allows the debtor to discharge or restructure their debts.
Closing shot of the person at the desk smiling and feeling relieved.
Find the difference between Insolvency and Bankruptcy explained in simple language.
To learn more about similar legal terms subscribe to our channel and look forward to our latest videos.
What is the difference between insolvency and bankruptcy? Let's understand it with an example.
Insolvency occurs when an individual or company is unable to pay off their debts as they become due. For instance, let's say Mr. Sharma has a business of manufacturing garments. Due to a lack of orders and financial mismanagement, his business incurs losses, and he is unable to pay his suppliers and employees on time. This situation leads to an increase in his liabilities, exceeding his assets, which means he is insolvent.
To tackle this situation, Mr. Sharma may try to negotiate with his creditors to come up with a repayment plan or restructure his debts. However, if negotiations fail, he may need to file for bankruptcy.
Bankruptcy is a legal process that allows individuals or companies to discharge or restructure their debts. For instance, if Mr. Sharma's debt becomes unmanageable and he is unable to pay off his creditors, he can file for bankruptcy under the Insolvency and Bankruptcy Code, 2016. The bankruptcy process involves liquidating the debtor's assets to pay off the creditors or restructuring the debts to allow the debtor to repay over time.
In summary, insolvency occurs when a person or company is unable to pay off their debts, while bankruptcy is a legal process that allows the debtor to discharge or restructure their debts.
Closing shot of the person at the desk smiling and feeling relieved.
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