Condition versus proceeding
Insolvency describes a financial condition, usually measured by whether debts exceed assets or whether obligations can be paid as they come due. Bankruptcy is a federal court proceeding under the Bankruptcy Code. A debtor can be insolvent without filing, and a voluntary bankruptcy filing does not require proof of insolvency, although a case filed in bad faith can be dismissed. The distinction matters because many legal consequences, such as challenges to transfers, turn on insolvency regardless of whether a case is filed. Understanding both helps in choosing the right path.
Federal bankruptcy and state-law alternatives
Bankruptcy in the United States is governed by federal law and heard in federal bankruptcy courts. Outside bankruptcy, state law provides other tools, such as assignments for the benefit of creditors, receiverships, and ordinary judgment enforcement. These alternatives can be less expensive but generally lack features like the automatic stay or a discharge, and a state-law process cannot release debts the way a bankruptcy case can. Cross-border cases add another layer, since a foreign insolvency proceeding may be recognized in a US court through Chapter 15. Gather financial statements, debt documents, and information about assets in every country where they are located.
Choosing the framework
We help clients decide whether a bankruptcy filing, a state-law process, or a negotiated workout fits their situation. For businesses, the decision often depends on whether the company will continue operating and how its assets are encumbered. For individuals, it depends on income, assets, and the kinds of debt involved. When a company has a future, the question is usually whether creditors can be brought to agreement without a court; when it does not, the question is which process returns the most value at the least cost. Where assets or creditors are located in Korea or other countries, we coordinate with counsel there. The first step is a clear picture of the finances and the goals.
