Even with a good business model and hard work, a business during difficult economic times can become insolvent. Insolvency is a state that many businesses and companies find themselves in when they are unable to generate the revenue necessary to pay their debts on time. In some cases, insolvency can apply to individuals as well. Insolvency is not the same as bankruptcy, because bankruptcy is only a potential result of insolvency. When a business owner finds their company is unable to make payments on their debts, bankruptcy or debt negotiation is considered as an option. Depending on the situation, insolvent businesses who declare bankruptcy may be able to negotiate a situation in which they are able to finish off their debts and keep their doors open.

Types of Insolvency

In these tough economic times, insolvency has become rather common. Thousands of businesses across the nation are battling debt problems that leave them with difficult choices. Two common types of insolvency are:

  • Balance sheet insolvency
  • Cash flow insolvency

Balance sheet insolvency refers to a situation in which a company has more liabilities than assets, while cash flow insolvency refers to a situation in which the company does not have enough cash to pay for debts when they become due. They are both obviously dangers to the company’s future and something must be done to fix them immediately.

Other Options

Declaring bankruptcy can be an effective way to solve the problem of insolvency, but there may be other options as well. With the help of an experienced bankruptcy attorney, you may be able to negotiate with your debt collectors and come to an agreement on a solution for debt repayment. An attorney may be able to negotiate:

  • Reduced monthly payments
  • Reduced interest
  • Extended payment due dates

Choosing debt negotiation or bankruptcy may be able to help you keep your business running while you resolve your insolvency issues. Dealing with financial woes is never easy and it can be quite overwhelming.