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Insolvency Test

You may think that being under creditor pressure is not the same as being insolvent. This is not necessarily true! The inability to pay your debts on time is a definition of insolvency - see below.

Use this page to establish if you are insolvent.

There are three methods to determine insolvency:

1. The Cashflow Test.
   1.1. Simply - can you pay your debts as and when they fall due for payment?
   1.2. For example if you are due to pay a loan repayment each month and you are say, 2 months in arrears, then you are probably insolvent.
   1.3. If you believe you have insufficient cash each month to pay your liabilities on time then you must take advice/action.
2. The Assets and Liabilities Test.
   2.1. Simply - do you owe more money than you own assets?
   2.2. For example you have a house worth £100,000 and mortgage and loans/credit card debts of £125,000, then you are insolvent.
   2.3. Many people tell us that on this test, they have more assets than liabilities, so they do not need to act. We disagree, its important to take action to protect those assets
   2.4. And, under the cashflow test above they may, of course, still be insolvent.
3. Legal Action Test.
   3.1. If a creditor has obtained a County Court Judgment against you or in your name, this may demonstrate your insolvency.
   3.2. Before any creditor can make you bankrupt they must issue a statutory demand against you (for over £750) and it must not have been defended or disputed, see Legal Actions Guide Page

If you believe that you fail any of the above tests, it is vital that you take action to address the insolvent position.

But, don’t panic, read about the options you have available and then call us for a chat!