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Insolvent

Insolvent

The word insolvent comes from the Italian 'insolvente' and is a financial situation that a company or individual may find themselves in when they are unable to meet their financial obligations to their customers, suppliers or public authorities.

When is a person insolvent?

Basically, you are insolvent when you cannot meet your financial obligations. That is, when you cannot pay your bills from public authorities or suppliers.

However, you are only considered insolvent when this inability to pay is long-lasting - and thus not just a short-term financial challenge.

Technically insolvent

Technically insolvent is a legal term that in practice is far less serious than the pure version of insolvency.

While insolvency refers to the inability to pay your incoming invoices, technical insolvency refers to the fact that your debts exceed what you can realize your assets for.

For example, if you owe DKK 1,000,000 on a house, but the house is only worth DKK 800,000, you are technically insolvent. In this case, it often doesn't matter much if you don't have to sell the house right now - and you are still able to pay your mortgage repayments.

Thus, a status of technical insolvency will often affect neither you nor your creditors, provided you can meet your obligations.

Declared insolvent by the bailiff court

Individuals and businesses can be declared insolvent by the bailiff court - either by self-declaration or at a bailiff court hearing.

The enforcement court decides whether your financial situation is suitable for an insolvency declaration. With an insolvency declaration, you are legally protected for a period of 6 months. This period gives you the opportunity to get out of your financial challenges. It is not possible to be summoned to the enforcement court during this period.

There are many requirements for you and your business during the 6-month period. For example, your business is not allowed to acquire new assets during this period. If you do so, a creditor will be able to seize them. In practice, the 6-month period will also be broken.


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