What Is Insolvency?
Insolvency refers to a business that can no longer pay its debts. A company might be unable to repay creditors if it’s struggling financially. The company might have had a significant drop in income due to lost sales, increased expenses due to the cost of goods or labor, or the business might be suffering from poor decisions.
While insolvency typically refers to businesses, individuals can become insolvent too. Simply put, if you can’t pay debts (like your credit card, student loans, medical bills, or mortgage), you’re insolvent. However, people who no longer can manage their debts are also more likely to face bankruptcy, which isn’t the same as insolvency.
Key Takeaways
- Insolvency is the inability of a…
