Many people confuse the terms "bankruptcy" and "insolvency". A person files for bankruptcy when they are insolvent. A person that is insolvent does not necessarily have to file for bankruptcy. The delicate balance between insolvency and bankruptcy can be difficult to understand. Both have to do with the inability to pay debts on a person's current amount of cash flow. The essential difference between insolvency and bankruptcy is that bankruptcy is a legal action. It is recognized by the government as a way to pay creditors and help people regain control of their finances.
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There are many different causes for insolvency, which may, in turn, lead to a person filing for bankruptcy. These fall into two main categories. The first cause is debts accumulating over a long period of time. Poor management of cash, and large mortgages, loans, and spending on credit cards will eventually accumulate interest and minimum payments that will be impossible to pay off.
The second reason is a drastic change in circumstances causing someone to accumulate debt very quickly. Insolvency can be caused by sudden changes. Health problems are often times unexpected and the subsequent medical bills may be impossible to pay off. Especially in today's economy, more and more people are being laid off or permanently losing their jobs. No income will quickly land a person with bills they cannot possibly pay.
Filing for bankruptcy due to these circumstances can have many advantages, the foremost being that it will relieve a great deal of stress and financial burden. Financial problems are one of the main causes of stress in individuals. Debts that are eliminated can give people another chance to effectively manage their money.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
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