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What is the exact definition of "insolvency"

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  • What is the exact definition of "insolvency"

    This seems to be the key term for the determination of fraud.

    In my situation, I used to earn $60/hr with my skills. When I started to seriously look for work again after a nice sabbatical made possible by nice gains in my investments, I thought that I would be able to get work again at even the low rate of $45/hr, which would be more than enough to support the long term debt service of $2400/mo + a house note of about $1200/mo. In my situation, the house note would be at 2.7%, and if I did not buy the house, I would owe an extra $92K (the amount that was given to me to buy a home through a Hurricane Katrina grant from the state), so I figured that whatever would happen, it was *vitally* important that I get that home. And with the ability to get a low interest 2nd mortgage, I could have paid down a bunch of those debts, making my debt service even less - perhaps a total debt load of under $2K. I was also going to contract out the home myself, doing some of the work, like the electrical (legal for the homeowner to do in that parish {county} ), giving me even more equity to be made liquid by the 2nd mortgage.

    I also believed that my stock investment (mutual fund), bought at some low points - a fund in which I had some investment at $30 that went down to $9.5 (one buy) and then down to $5.3 (another buy), and then down to $3.8 (ran out of credit to buy), and then back up to around $11 now - would come to fruition so long as I could survive without spending it down - which after I ran out of credit, I needed to do, starting in April, with an average "burn rate" of about $4K/mo (the debt service was a bit higher as I still had a car note of $380/mo {just now paid off on the regular schedule}, and the debt service for the other accounts was a little higher because the principals were higher.)

    Even though no job offer was made after numerous expression of interest and even several interviews (although I think in retrospect that some of those interviews were fake interviews by Asian Indians who were trying to justify that they couldn't find an American worker with the exact requirements for their position), I continued to believe that I would eventually find work at my level. Unfortunately, the clock has run out, and I need to declare BK. I could probably find work at $25/hr, and if I didn't have the crushing debt burden, it would be OK. (P.S., it's hugely ironic that the banks that are outsourcing their jobs to these Indians who won't hire Americans have helped put me in the position of declaring BK on them because I can't find work. )

    So I am wondering if someone in my position would be considered insolvent. From one point of view, it seems that someone could be considered insolvent as soon as his debt would exceed his liquid, real estate and vehicle assets. OTOH, as long as someone reasonably figures that he could earn enough to service such debts in excess of his assets, he would not be insolvent. Then the question becomes what is a reasonable expectation of future income? I would think that since I had earned such in the past, that I would earn such in the future (even though I had gone through a sabbatical period that was unexpectedly lengthened by the horrors of a hurricane flood, and I expected that my investments would continue to grow in any case, rather than go down the tubes like they did.)

  • #2
    Insolvency is not a requirement for bankruptcy and is defined in several ways in different places.

    Sometimes it means you are no longer able to pay your bills as they become due.

    For the IRS it means your debts exceed your assets (even if you have income to pay your bills)

    it just depends.

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    • #3
      I'm not sure where you get insolvency is the key term for the determination of fraud.
      Well, I did. Every one of 'em. Mostly I remember the last one. The wild finish. A guy standing on a station platform in the rain with a comical look in his face because his insides have been kicked out. -Rick

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      • #4
        Well, if I'm declaring BK 6-8 months ahead of when I would be insolvent (based on my "burn rate" of about $3700 of living expenses and debt service), wouldn't that show that I am being diligent about determining that my situation is insolvent, at which time I should declare BK?

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        • #5
          BK is a snapshot of your current situation not a what-if analysis and you don't have to wait until you've burned through all your liquid assets to file.

          You complete your means test, Schedules I and J and you'll know pretty completely whether you are insolvent today.
          Well, I did. Every one of 'em. Mostly I remember the last one. The wild finish. A guy standing on a station platform in the rain with a comical look in his face because his insides have been kicked out. -Rick

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          • #6
            Swampbiz,
            You're way overthinking this. Many of us have filed for bk and emerged with a positive net worth.
            Me, the equity in my home was exempt plus, my IRA and 401K were exempt. I was discharged with a net worth of roughly $90K.

            Your big problem right now is, you seem determined to sit around and wait until you're destitue to file. If you can get a $25/hr. job-take it! Remember, you have to support yourself post bk.

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            • #7
              Insolvency comes into play in determining if any transfers were fraudulent transfers. That's one area where it is important.

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              • #8
                Well, of course, I will be working again. The problem is that if I were to take that job at $25/hr, I would not qualify to build a home - and the home, and the special financing I would get from the SBA at 2.7%, and from a 2nd mortgage on equity of the homesite and sweat equity would allow me to knock down the debt down to below the value of my investments, at which time I could consider whether it would be better for me to keep my investments leveraged, or to just take them down.

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                • #9
                  The cash advances for playing the stock market you mentioned in the other post are the actions that could bite you, not the definition of 'insolvency' when you file. Anyone who is unlikely to come up with the money to pay what is owed is considered insolvent. If you take on more debt during this time and intent can be proven, that's fraud; but the willingness to prove intent depends on the creditor.
                  Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

                  Comment


                  • #10
                    Originally posted by swampwiz View Post
                    Well, of course, I will be working again. The problem is that if I were to take that job at $25/hr, I would not qualify to build a home - and the home, and the special financing I would get from the SBA at 2.7%, and from a 2nd mortgage on equity of the homesite and sweat equity would allow me to knock down the debt down to below the value of my investments, at which time I could consider whether it would be better for me to keep my investments leveraged, or to just take them down.
                    That is one looooooong sentence. What exactly are you trying to accomplish here? Are you looking for investment advice or BK advice?

                    Are you saying you have to be unemployed to receive special financing? If that is your situation and you are avoiding working because of it I am suspect of your intentions.
                    Well, I did. Every one of 'em. Mostly I remember the last one. The wild finish. A guy standing on a station platform in the rain with a comical look in his face because his insides have been kicked out. -Rick

                    Comment


                    • #11
                      Originally posted by OhioFiler View Post
                      What exactly are you trying to accomplish here?.
                      That's the big question that I've been wondering. What are you trying to accomplish. Your posts are all over the place, you're homeless, yet have 30K in stocks, you're unemployeed, yet could get a $25 per hour job.....

                      What's the game that you're playing?
                      All information contained in this post is for informational and amusement purposes only.
                      Bankruptcy is a process, not an event.......

                      Comment


                      • #12
                        Told you this guy is a Troll.
                        7-2-2009 Filed
                        8-28-09 341 Concluded, no assets
                        10-28-09 DISCHARGED/CLOSED!!!!

                        Comment


                        • #13
                          I've been wondering that myself.

                          So OP, you've been using your stock earnings "just for living", yet you believe you could earn more than double what I earning making before I lost my job... so I guess you're living with relatives while your house that you can't afford is built (?), while not looking for a job because $25/hr isn't good enough... what??

                          Why not make things easier by telling us straight up what the problem is and what you're trying to accomplish by filing BK? Are you trying to punish the banks because of the emotional impact of Hurricane Katrina?

                          Something here isn't adding up, at least not in terms of BK. You played the market on credit cards and want to BK them. That's fraud, only it's year-old fraud, so it's a gamble. I'm sorry that you are a hurricane victim. My job of 11 years was outsourced to India last year also, so I also know what it's like in this globalized market, especially in the midst of the Great Recession as they're calling it. Unfortunately, the banks and trustee are only going to focus on your actions leading up to your BK, and your attorney is going to be focused on your life after BK; neither of which are looking good. You'll have to be able to afford to live afterwards or BK isn't going to help you.
                          Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

                          Comment


                          • #14
                            Why do you need to build a home? Why not just rent somewhere cheap. It's just a place to sleep. I'm not getting why you would have $3700/month in living expenses? I don't have barely that much and there are 5 in my family with two car payments and a mortgage. Bankruptcy isn't just about getting out of your problems, it's about changing your lifestyle so you don't get back into the same predicament. Think about what you NEED rather than what you want.
                            Filed Ch7 10/14/09 - 341 11/23/09
                            Last day for objections 1/22/2010
                            Discharged!!! 1/25/2010
                            Closed! 1/28/2010

                            Comment


                            • #15
                              Originally posted by whipster1 View Post
                              Told you this guy is a Troll.
                              I've been thinking that as well.
                              Filed Ch7 10/14/09 - 341 11/23/09
                              Last day for objections 1/22/2010
                              Discharged!!! 1/25/2010
                              Closed! 1/28/2010

                              Comment

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