Insolvency is a term used for when an individual or Company can no longer meet their financial obligations to Creditors. Insolvency can arise from poor cash management, a reduction in cash inflow, or an increase in expenses. Before an Insolvent Company or Individual gets involved in insolvency proceedings, they will likely be involved in informal arrangements with Creditors, such as setting up alternative payment arrangements or seeking a Debt Counsellor / Business Rescue Practitioner for third party assistance.
What Is Insolvency?
You can be insolvent without being bankrupt, but you can’t be bankrupt without being insolvent. See Insolvency vs. Bankruptcy.
Confused yet? Many people think of the two as the same thing, but they are very different. Insolvency is a problem that bankruptcy is designed to solve.
Insolvency is the inability to pay debts when they are due. Fortunately, there are solutions for resolving insolvency, including borrowing money or increasing income so that you can pay off debt. You also could negotiate a debt payment or settlement plan with creditors.
Bankruptcy is usually a final alternative when other attempts to clear debt fail.
What if I am Insolvent?
If you are financially overwhelmed and sure you can’t pay your debts, you should contact a Debt Management company that can help you review your budget/balance sheet. Even if you don’t have enough income to pay your debts, a Debt Manager can try to negotiate better deals that lower interest rates and extend terms to assist you through the tough times.
You can also try to negotiate with creditors on your own. If you owe a large credit-card debt, contact the Credit Provider and explain your situation. Though the Credit Provider is under no obligation to accept a payment arrangement, reduce your debt repayment or interest rate, it is in their best interests to assist you.
Types of Debts that can go into an insolvency application:
INDIVIDUALS (See Sequestration)
Pay Day Loans
Loans
Overdrafts
Credit Cards
Store Cards
SARS Penalties
Cell phone Contracts
Other third-party Contracts.
COMPANIES (See Business Liquidations)
Any credit agreements
Assets owned by the company to be sold off to settle debt owed.
SARS – VAT, PAYE, penalties, arrears.
Lease Agreements with extended terms
Contractual Agreements with extended terms
Employee Earnings and Company Benefits.