Difference Between Insolvency And Bankruptcy

Difference Between Insolvency And Bankruptcy

The major dissimilarities or difference between insolvency and bankruptcy can be highlighted as follows:

1. Introduction

Insolvency: A state of financial distress where an individual or a firm cannot pay off debts.

Bankruptcy: It is a legal declaration that an individual or a firm is insolvent and is not able to meet financial obligation.

2. State

Insolvency: It states financial inability

Bankruptcy: It is a state of being insolvent

3. Nature

Insolvency: It is temporary in nature and can be recovered 

Bankruptcy: It is permanent in nature and final stage of insolvency, so it cannot be recovered.

4. Results In

Insolvency: If it cannot be recovered, it leads to bankruptcy

Bankruptcy: Winding up

5. What Is It?

Insolvency: It is a process of being bankruptcy

Bankruptcy: It is a final realization of financial inability

6. Type Of Process

Insolvency: It is an involuntary process

Bankruptcy: It is a voluntary process

7. Effect On Credit Score

Insolvency: No

Bankruptcy: Yes

Insolvency Vs Bankruptcy (Comparison Chart)

Basis	Insolvency	Bankruptcy
Introduction	Financial distress where firm is unable to pay off debts	Legal declaration of firm being insolvent
State	Financial inability	Unable to meet financial obligation
Leads To	Bankruptcy	Winding up
Nature	Temporary	Permanent
It Is	Process of bankruptcy	Final realization of inability
Type	Involuntary process	Voluntary process
Credit Score	No effect	Effected

I hope this post is helpful to understand the difference between insolvency and bankruptcy and to make comparison between them.