What is the difference between insolvency and bankruptcy?

Answer 1

THey are synonymous with others:

defalcation, default, destituteness, destitution, disaster, exhaustion, failure, indebtedness, indigence, lack, liquidation, loss, nonpayment, overdraft, pauperism, privation, repudiation, ruin, ruination

They are very different actually. Insolvency is a financial/accounting term that means one has liabilities or debts in excess of their assets. Obviously it is an important consideration in financial analysis and credit matters. Many people or companies can be insolvent without an outward signs, or even as part of their plan...a stat up for example frequently is but it's plan is to generate income in the future, as it markets it's product, and have more assets than debt.

Bankrutpcy is a legal term and actually a legal process. To be bankrupt one needs to have filed with the US Bankruptcy Court the required documents, under the appropriate program or Law, and be declared bankrupt. At that point a number of legal things occur which have to do with the court providing financial protection and taking over the affairs of the BK.

Commonly (and the way the Law is intended), someone becomes insolvent, with no chance of remedy, before they file bankruptcy.

Of course the term bankrupt may be used in other than financial ways as a colloquiel expression. As in someone is "morally bankrupt"

Answer 2

There is no difference in the meanings. They both mean the debtor cannot pay his obligations as they come due.

In the US, bankruptcy also refers to a state (rare) or federal procedure to obtain a discharge of the debts. The discharge prohibits any creditor or debt collector from taking any action to collect a disharged debt.

Answer 3

Insolvency is the complete lack of cash funds or similar transferable currency. Bankrupt is a legal status indicating that a person's debts were wiped away and that their possessions were claimed in an attempt to make up the difference.

Wrong. Discharge in bankruptcy establishes the permanent stay to debt collectors. Bankruptcy and insolvency both mean the inability to pay your debts as they come due, also known as illiquidity or no liquidity.