What is Insolvency and Can it Happen to You?

Insolvency is a financial state in which you can no longer meet your financial obligations as they come due. More than 5 million Australians have faced difficulties in making loan and debt repayments, with many not seeking assistance. When your debt reaches the point where you can no longer keep up with payments, you are considered insolvent.

There are two main types of insolvency: cash-flow insolvency and balance-sheet insolvency. Cash-flow insolvency happens when you don't have enough cash to cover your debts, even though your assets might be sufficient to pay them off. Balance-sheet insolvency occurs when both your cash and the value of your assets are insufficient to cover your liabilities.

Insolvency Versus Bankruptcy: There is a Difference

Insolvency and bankruptcy are often confused but are distinct concepts. Insolvency is a financial state that describes a situation where you can't meet your financial obligations. Bankruptcy, on the other hand, is a legal process that may be initiated when an insolvent person is unable to resolve their financial difficulties.

Before considering bankruptcy, there are various options available to address insolvency. Revive Financial specialises in offering these solutions to help individuals manage their debt effectively.

Positive Solutions to Your Bad Debt

As soon as you become insolvent, it's essential to take immediate action to address your financial situation. This might involve generating additional income through a second job, selling unused household items, reducing living expenses, or consolidating and refinancing your existing loans and debts.

If your debt is more severe, you may be eligible for an Informal Agreement or a Part IX (9) Debt Agreement. Deciding which agreement to choose depends on your unique circumstances and personal preferences. You can read our article comparing the two agreements to help you make an informed decision for your situation, or you can call 1800 534 534 to speak with one of our debt experts, who can answer any questions you may have.