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Insolvency

The term insolvency is defined as the inability to pay one's debts. The term insolvency is commonly used in relation to businesses, when a company is unable to pay off debts. Insolvency in business can be defined in two different ways. First, cash flow insolvency is exactly what it sounds like. A business with cash flow insolvency does not have the monetary funds needed to pay its debts. The second type of insolvency is called balance sheet insolvency. In this case, balance sheet insolvency means that a business has negative net assets, meaning that the businesses liabilities exceed their assets. Insolvency does not mean the same thing as bankruptcy, though the terms are closely related. Bankruptcy is a legal process which allows insolvent businesses or individuals to resolve their debt difficulties.

Fast Facts

  • 28% of bankruptcy filers blame medical bills for their financial situation.
  • U.S. consumers charged an estimated $51 billion worth of fast food to their personal credit and debit cards in 2006.

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