Insolvency and Bankruptcy

The technical term for being unable to pay back your debt is insolvency. It sounds like something you might have been taught in high school chemistry, but it doesn’t take a genius to understand. If you have a large sum of debt you can’t pay back in a timely fashion, you’re insolvent.

You might get insolvency confused with another familiar term: bankruptcy. While everyone who declares bankruptcy is insolvent, not everyone who is insolvent is bankrupt. Insolvency is simply a financial state of being; bankruptcy is a legal declaration of this financial distress. Think of it in terms of prime numbers. (Yes, another school subject.) All prime numbers greater than 2 are odd numbers, but not all odd numbers greater than 2 are prime numbers. In some other countries, though, filing for insolvency and filing for bankruptcy are the same. In the US, bankruptcy is a legal declaration of your insolvency.

The most common ways to become insolvent are living beyond your means and running up large debt on multiple credit cards. It can also happen if your income is lower than previously expected, and this is something that is likely not under your control. Ultimately, it is your responsibility to make sure your payments get made on time, but I absolutely understand outside forces can affect the amount of money you have.

Becoming solvent again (being able to make your payments) is not an overnight thing, so the most important thing to remember is to stay calm. Just as a country’s economy takes time to stabilize from a recession, your personal expense issues could take a few months to be righted. Declaring bankruptcy is a last resort because this will be a black mark on your credit for seven years. What you should do immediately is moderate what you purchase.

There are numerous ways to change the amount of money you have, such as taking public transportation, consolidating your credit card debts onto one account, or selling some of your unnecessary assets. You could ask your boss for a raise or even look for another part-time job. If you don’t already have one, get a VIC card to save a little if you buy your groceries at Harris Teeter. Heck, you could even try out for a game show, like Jeopardy! or Wheel of Fortune, to see if you can put your trivia or spelling skills to the test. (Personally, I’ve tried out for Jeopardy! three times. Haven’t made it, but I’ll keep on trying.) You’ll never know unless you try.

Insolvency will not disappear if you don’t do anything to change it. But if you can find a way to lower your expenditures or gain a little more income, you will be on track to achieving solvency once again.

David Pilley

David Pilley

David Pilley is a May 2010 graduate of the University of North Carolina at Chapel Hill, with a B.A. in communication studies and a creative writing minor. He is a native of Raleigh, North Carolina.

He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.

Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.

In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
David Pilley

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