On 6th February, we received a question from Sufri Safuan as below:
What are the differences between insolvency and bankruptcy?
Distinction between Bankruptcy and Insolvency
Insolvency is merely the factual state of a person’s inability to pay his debts, but who is not yet adjudicated a bankrupt.
Bankruptcy is the consequence arising out of a situation whereby an insolvent debtor is unable to pay his debts with his own money or property, is adjudged or declared a bankrupt by the court.
A state of insolvency can lead to bankruptcy. However, it is also possible that the state of insolvency could be temporary and fixable. Thus, insolvency does not necessarily lead to bankruptcy but all bankrupt legal entities or persons are deemed to be insolvent.