Insolvency law, also known as bankruptcy law, is a set of regulations designed to assist individuals who are unable to repay their debts. It provides relief to debtors by allowing them to undergo a legal process where their assets are either sold or reorganized to settle their debts. There are various types of bankruptcy, with the most common being liquidation and rehabilitation. Liquidation involves selling off assets to repay creditors, while rehabilitation allows the debtor to retain their assets and gradually repay their debts. Insolvency law also addresses the rights of both creditors and debtors. When someone declares bankruptcy, they are considered insolvent, meaning they are unable to meet their financial obligations. The term “bankruptcy” originates from an old Italian tradition of breaking the counter of a failed merchant.
Insolvency law, also known as bankruptcy law, provides a framework for individuals who are unable to repay their debts to seek relief from their creditors. While bankruptcy is commonly associated with insolvency law, the two terms are not always interchangeable. In cases where an individual owes significant amounts of money to multiple creditors and cannot meet their obligations, they have the option to file for bankruptcy. This initiates a legal process overseen by a court, where the individual’s assets are sold to repay their debts. Bankruptcy can take different forms, including Chapter 7 (liquidation bankruptcy), Chapter 11 (rehabilitation bankruptcy), Chapter 12 (specifically for family farmers), and Chapter 13 (rehabilitation bankruptcy for individuals with regular income). Insolvency law also addresses the rights of both creditors and debtors in these situations. For instance, if a debtor is being pursued by a creditor for debt collection, insolvency law can be utilised to safeguard the debtor from harassment or unfair treatment. Ultimately, the purpose of insolvency law is to provide individuals burdened by debt with an opportunity for a fresh start and the ability to move forward in their lives.
Insolvency law is a legal framework that governs the process of dealing with individuals or businesses that are unable to pay their debts.
Insolvency refers to a financial state where an individual or business is unable to pay their debts, while bankruptcy is a legal process that is initiated when an individual or business is unable to pay their debts and seeks protection from creditors.
There are two types of insolvency: cash flow insolvency and balance sheet insolvency. Cash flow insolvency occurs when a business is unable to pay its debts as they become due, while balance sheet insolvency occurs when a business’s liabilities exceed its assets.
An insolvency practitioner is a licensed professional who is appointed to manage the affairs of an insolvent individual or business. Their role is to maximize the value of the assets and distribute them fairly among the creditors.
A voluntary arrangement is a legally binding agreement between an insolvent individual or business and their creditors. It allows the debtor to repay their debts over a period of time, usually three to five years.
A winding-up petition is a legal action that is initiated by a creditor to force an insolvent business into liquidation. It is a last resort for creditors who are unable to recover their debts through other means.
Liquidation is the process of selling the assets of an insolvent business and distributing the proceeds to its creditors. It is usually initiated by a court order or a voluntary decision by the directors of the business.
A bankruptcy order is a court order that declares an individual or business bankrupt. It is usually initiated by a creditor who is owed a significant amount of money.
A bankruptcy trustee is a licensed professional who is appointed to manage the affairs of a bankrupt individual or business. Their role is to maximize the value of the assets and distribute them fairly among the creditors.
The debts of an insolvent individual or business are usually written off or reduced through the insolvency process. However, some debts may still need to be repaid, depending on the type of insolvency and the specific circumstances of the case.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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