Insolvency unaffordable? That’s not true because here’s how it works

It’s really unfortunate that there are commentators who perpetuate the myth that ‘insolvency is unaffordable’. This is probably best viewed as an example of financial illiteracy showing through what should otherwise be reasoned deduction. Here is a video showing how creditors pay for insolvency, it goes through a simple ‘T account’ breakdown of where the cost lies.

The easiest way to think about it is like this, imagine you go to a bar with another person and they give you money to pay for drinks. The person who actually pays for the drinks is you, you give the money to the bartender, but the cost is born by the person who gives you the money to do it with.

Using that analogy the borrower is the one paying, but the cost is born by the creditors, check out the video, it will help to make that clear.

And remember that when you hear how a person ‘can’t afford to go insolvent’ that they are making the mistake of repeating something they heard without investigation, normally what they really mean to say is that ‘they structurally can’t opt for insolvency’ which is also explained at the end of the video.

Trackbacks for this post

  1. Insolvency only for the well off? | Bankruptcy Advice

Leave a Comment

Awesome! You've decided to leave a comment. Please keep in mind that comments are moderated.