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Bankruptcy is Not Insolvency

July 25, 2013

Although down-on-their-luck debtors are often said to be “bankrupt,” that turn-of-phrase is a bit inaccurate. While it’s true that people who can’t pay their debts often declare bankruptcy, the two terms mean different things.

An individual is insolvent when he or she cannot meet his or her financial obligations as their debts come due. An individual is bankrupt when he or she takes a certain legal action, namely, filing bankruptcy, wherein he or she files a petition with a bankruptcy court as provided under federal law (the Bankruptcy Code).

The difference is more than mere semantics. An individual who is insolvent may not chose to declare bankruptcy. Creditors may exercise their rights under state law or they may simply wait and hope that the debtor makes a payment at a later time.

Likewise, a bankrupt debtor is not necessarily insolvent. The Bankruptcy Code does not impose an insolvency requirement. As a result, some debtors decide to make a strategic bankruptcy filing, declaring bankruptcy before they hit rock bottom. Consequently, they are often left with more available financial assets and cash-on-hand than if they waited until the bitter end.

Are you considering declaring bankruptcy, regardless of whether you happen to be insolvent? You may have questions and, fortunately, as experienced bankruptcy professionals, we may have answers. Find out whether the attorneys at the Dallas law firm are prepared to help you by talking to us today. With years of experience, we help struggling debtors get back on their feet. For your free consultation, call today.


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