Bankruptcy and Insolvency Lawyer: Definition and Role

No one likes bankruptcy. Those who face bankruptcy worry over their crumbling financial health and the next steps they must take. Those who are owed money by the aforementioned individuals/entities worry about receiving payment. When unexpected events trigger unmanageable debt, simply hoping for the best is not enough. Before you can choose a path forward, you need to know what you are facing.

At the outset of typical bankruptcy proceedings, there are two types of key players: 1) Licensed Insolvency Trustees (formerly known as Trustees in Bankruptcy) and 2) Bankruptcy Lawyers. As Ray Parker Jr. Ultimately, as a creditor, you are best served by speaking with a bankruptcy lawyer as to your next steps at recovery. As a debtor, you should first speak to a Trustee for an initial assessment - following which you can raise any concerns with a bankruptcy lawyer.

The following is for informational purposes only and should in no way be relied upon as legal advice.

Understanding Insolvency and Bankruptcy

People who are struggling to meet their financial obligations every month may find themselves asking, “What is the difference between bankruptcy and insolvency?” Although the two terms are frequently used interchangeably to describe someone in financial distress, they are not the same.

Simply put, insolvency is a financial condition where a person or business cannot pay their debts as those debts come due. It is a state of having more liabilities than assets. Insolvency describes a consumer’s financial state when his or her debts add up to more than the person’s assets. Moreover, the law provides a specific calculation for partnerships. In determining whether a partnership is insolvent, the present fair saleable value of the separate assets of each general partner must be added to the partnership property.

On the other hand, bankruptcy is one specific legal remedy, or the solution. Bankruptcy is a formal federal legal process in which a debtor officially declares their debts and the government provides debt relief to the debtor. A debtor can only be considered in bankruptcy once that person has filed a petition with the bankruptcy court, it has been accepted, and it is given a case number. Proving insolvency to the court is a part of the bankruptcy proceedings. Bankruptcy is just one of the tools that can be used to remedy insolvency. For instance, a company may restructure its pay scale among higher-paid employees, reduce staff, or find other ways to cut expenses and costs. These tactics may allow the company to get out of insolvency without filing for bankruptcy. In 2021 around 400,000 people filed for bankruptcy in the United States with only one state coming ahead of Nevada with the most filings.

If you or your business is struggling to make ends meet, let an experienced bankruptcy lawyer review your situation.

Types of Insolvency

Two types of insolvency are recognized across the United States. They are Balance Sheet Insolvency and Cash Flow Insolvency.

Balance Sheet Insolvency: This occurs when a company or an individual’s assets are worth less than the debtor’s liabilities. To make this determination, the debtor’s inflow, outflow, and assets are evaluated. Assets are assessed at a current “fair market” value. The term “fair market value” defines the price that a buyer would purchase the property for from the seller. This term is heavily debated. If the balance sheet test reveals that the debtor’s outflow is more than the inflow, and debts are worth more than assets, then a condition called “negative net assets” is identified, and the debtor is declared to be insolvent. Even if the company or person were able to liquidate the assets back into cash, the debtor would not have enough money to pay all of what is owed, so restructuring without filing bankruptcy is most likely not an option.
Cash Flow Insolvency: The cash Flow Insolvency test is also referred to as the ability to pay test. This test looks at a company or individual’s ability to pay debts or bills when they become due. In most cases, cash flow insolvency occurs when consumers or businesses have exhausted other means of resolving their debt, like taking out loans or selling possessions. Some instances of cash flow insolvency are temporary. If you are expecting a large sum of money soon, like an inheritance distribution, for instance, you may be able to rearrange your monthly payments until you receive the income.

Using one of these tests can help companies and individuals see their financial status and determine what steps need to be taken to become financially stable again.

Types of Bankruptcy

Various types of bankruptcy exist, and each has its own eligibility requirements, benefits, and drawbacks. When individuals are insolvent, they might consider filing Chapter 7 or Chapter 13 bankruptcy. Businesses that are struggling financially, however, usually file Chapter 11 bankruptcy.

Chapter 7: Debtors’ assets are sold for the benefit of creditors (liquidation).
Chapter 11 or Chapter 13: These involve reorganization.

The major difference between a Chapter 13 and Chapter 7 bankruptcy is the ability of the debtor to pay back a portion of the debts owed over time. The time frame that it will take to conclude the bankruptcy. Chapter 7 is usually completed in less than a year. No matter what chapter is filed, creditors cannot try to collect on the debt while the debtor is in bankruptcy status. When the bankruptcy is over, then creditors cannot attempt to collect on debts that were discharged in the bankruptcy. Completing the bankruptcy process helps with getting a fresh financial start so that the people involved can move forward.

A filer needs to file in the correct district and follow all the requirements that are outlined by the court to complete their bankruptcy. Failure to do this can lead to a dismissal of the bankruptcy. If a dismissal is ordered, then the debtor continues to owe all debts and is no longer protected from collection attempts.

If you are a company or an individual who has fallen too far behind in your payments, a creditor can take you to court to recover the amount owed. If a court has rendered a judgment against you, garnishments can be issued to try to collect the monies. Filing bankruptcy can place a temporary stay on your financial affairs, stopping creditors from taking further action.

Individuals and businesses become insolvent for various reasons. In some cases, financial mismanagement is the culprit. Oftentimes, however, people face unexpected hardships that lead to insolvency. People who are insolvent often consult with a bankruptcy attorney to help them determine whether bankruptcy is necessary and, if so, what type of bankruptcy to file.

The Role of a Bankruptcy and Insolvency Lawyer

Just like any other area of law, bankruptcy lawyers are those who practice in all sorts of areas of debt, security, restructuring, and insolvency law.

By and large, a debtor - especially a corporate debtor - should seek the advice of a bankruptcy lawyer only if they’re concerned about how the corporate bankruptcy will affect the individual shareholders, directors, and employees of the corporation. Similarly, in the context of individual bankruptcies and/or proposals, bankruptcy lawyers can assist in helping the debtor understand the consequences that their insolvency will have on property shared with spouses, and prospective challenges posed on that individuals’ life.

More often than not, bankruptcy lawyers represent and assist creditors in maximizing the amount of funds they can recover from insolvent debtors. Bankruptcy lawyers may become more involved in representing Trustees who are being challenged by various creditors of the bankrupt.

Here's how bankruptcy lawyers help:

Assessing the Situation: Determining whether bankruptcy is the right option.
Navigating Legal Processes: Assisting with filing and court procedures.
Protecting Rights: Representing debtors or creditors to protect their financial interests.
Negotiating with Creditors: Developing repayment plans and negotiating settlements.
Financial Restructuring: Helping businesses reorganize their debt and maintain operations.

When financial difficulties arise, having an experienced bankruptcy lawyer by your side can make all the difference. At Bakke Norman, we offer a wide array of services designed to assist individuals and businesses in restoring their financial stability. Our attorneys specialize in tackling complex bankruptcy filings, recovering debts, and safeguarding creditors’ rights. Our proactive strategies not only mitigate losses but also help our clients position themselves for long-term success post-bankruptcy.

Bankruptcy Options Tailored to Your Needs

We assist individuals with personal liability for business debts if a business goes through reorganizational bankruptcy or financial restructuring. For businesses, we manage more complex filings like Chapter 11 bankruptcy, enabling organizations to restructure debt and maintain operations. We also provide support in Wisconsin’s unique Chapter 128 receivership cases, a voluntary process that allows individuals to pay off debts under court-supervised conditions. We assist receivers, creditors, landlords, vendors, and guarantors in all stages of a Chapter 128 proceeding.

Collections and Creditors’ Rights

Protecting the rights of creditors is a vital part of our bankruptcy practice. Our creditors’ rights attorneys are experienced in representing clients in all areas of collection. We represent creditors in bankruptcy proceedings, ensuring their interests are protected and prioritized.

Financial Restructuring for Businesses

Many businesses find themselves in need of financial restructuring amidst economic challenges. At Bakke Norman, we work closely with companies to develop reorganization plans that preserve operations while addressing outstanding debts. By leveraging our experience, we assist business owners in negotiating with creditors, securing emergency financing, and creating sustainable repayment plans. Whether it’s navigating secured transactions or avoiding potential insolvency, we offer strategic solutions tailored to your industry and unique circumstances.

Litigation Support in Complex Cases

Litigation matters can arise during bankruptcy and financial restructuring, often involving lender liability, fraudulent transfers, or creditor priorities.

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Experienced Bankruptcy Lawyers

Led by Deanne Koll and Bill Wallo, our team combines decades of experience with an unwavering commitment to client success. Deanne specializes in bankruptcy and business litigation, consistently achieving favorable outcomes for commercial clients and creditors. Bill brings extensive knowledge in business and contract litigation, providing invaluable insight for businesses navigating banking and restructuring challenges. Together, they form a dynamic team dedicated to addressing even the most complex financial cases.

Personalized Solutions for Every Client

Bakke Norman provides a collaborative approach and strategic thinking. As a result, clients benefit from tailored solutions that truly meet their needs.

Local Expertise With a Community Focus

With offices in New Richmond, Menomonie, Baldwin, and Eau Claire, our team serves as a trusted resource for businesses and individuals across Wisconsin and the east metro of Minneapolis-St. Paul. We are more accessible than ever to serve Northwest Wisconsin with offices in New Richmond, Menomonie, Baldwin, and Eau Claire. We take great pride in the communities in which we work and live.

Finding the right legal representation can be daunting. Contact Bakke Norman today using the confidential contact form below to tell us about your situation. We will review your legal needs and contact you.

Taylor L. Randolph, the founder of Randolph Law Firm, P.C., located in Las Vegas, Nevada. He focuses his practice on bankruptcy, foreclosure prevention, and IRS tax problems. An award-winning attorney who is admitted to practice before the IRS nationwide, Taylor excels in the representation of individuals and businesses who are facing legal challenges.

Bankruptcy Code Chapters

The United States Bankruptcy Code (title 11, United States Code) and the Federal Rules of Bankruptcy Procedure, are available online and at your local law library.