insolvency definition business - MARKETS
Insolvency is the inability of a business or individual to repay their debts. Businesses might become insolvent if they can't repay creditors, pay their employees, or continue to operate. Learn what insolvency means, how it works, and what options are available when a business or individual can’t meet their financial obligations.
Understanding the Context
Insolvency is a state in which a person or entity is unable to pay what they owe to creditors. Insolvency typically arises when a person or business is experiencing economic hardship or borrowing excessively. In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.
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Key Insights
Insolvency refers to situations where a debtor cannot pay the debts they owe. For instance, a troubled company may become insolvent when it is unable to repay its creditors money owed on time, often leading to a bankruptcy filing. insolvency | Wex | US Law | LII / Legal Information Institute Insolvency occurs when your liabilities exceed your assets. The forgiven debt may be excluded as income under the "insolvency" exclusion. Learn more.
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insolvency, financial condition in which the total liabilities of an individual or enterprise exceed the total assets so that the claims of creditors cannot be paid. There are essentially two approaches in determining insolvency: insolvency in the equity sense and under the balance-sheet approach.