Losing your company to creditors is, of course, financially disheartening and at times, emotionally distressing as well. It is not uncommon for a business to owe debts to creditors. However, there seldom appears a situation when companies find it hard to repay their debts. A common practice that many business owners seek to clear off mounting debts is filing for insolvency or bankruptcy.
What Is Insolvency?
In simple terms when a company or an organization cannot pay its debts or clear its dues, it is referred to as insolvent. Notably, the debts owed must exceed the value of assets or liabilities of the company. The process of clearing debts by selling these assets is referred to as insolvency.
If you’re facing insolvency, it’s important to understand the gravity of the situation, as well as all options. Here are a few answers to some of the most commonly asked questions…
1. When to file insolvency?
With mounting bills and debts, filing for bankruptcy might seem an appropriate option, but, you must be sure that there are no other alternatives. Usually, filing for insolvency requires your company assets to be worth either half or more of the debts that you owe. An insolvency litigation solicitor would help you make sure when you should be filing for bankruptcy, or whether you should be filing for it at all.
2. Chapter 7 or Chapter 13: Which is better?
Most common of the mistakes that many business owners make when filing for bankruptcy is missing out on the laws surrounding it. As the experts here https://www.ndandp.co.uk/insolvency-claims/ suggest, every business owner has the choice to either file for chapter 7 bankruptcy or chapter 13 bankruptcy. The main difference lies between the asset holdings after you’ve filed for bankruptcy. Under chapter 13 clause, you may seek a period of 5-7 years to pay off your debts in parts. Whereas, chapter 7, on the contrary, forfeits your ownership as soon as you file for insolvency.
3. Are there any alternatives to insolvency?
You need to explore other options before you file for insolvency of your company. Usually, an insolvency litigation solicitor would help you understand all the possible options that you have at your disposal, as already mentioned. For example, some laws and regulations can help waive off a portion of taxes that you owe, if you could prove hardships in paying off your debts.
4. Will filing for bankruptcy solve the debt problem?
Unfortunately, some debts are not simply waived off when you file for insolvency, even though this option seems so promising. For example, if you still owe money against an education loan, it is very likely that insolvency won’t help waive off these debts, and you may still have to repay it. So, it is therefore important that you ensure if filing for insolvency would really solve all your debt problems, or if no, then to what extent would you be relieved.
5. How long will it take for you to recover?
When you file for insolvency, it is noteworthy that its impact would last for the years to come. To put this into perspective, your credit score would take a hit, your bank statements would reflect huge losses, and your finances, as well as social life, would also be affected. Therefore, it is also important to understand how long it will take for you to recover out of this financial crisis.
Filing for insolvency is no child’s play and neither is operating a business successfully. However, it is also important to know when to enter and when to make an exit to mitigate the losses and impact of such a crisis.