What Does Insolvency Mean?

Insolvency means that you do not have the money or resources to pay for your liabilities.  Typically, your liabilities include any kind of debt or money you owe.  When you no longer have the money to cover these payments when they fall due, the situation is called insolvency.  Sometimes people and businesses go through lean periods. 

Companies and businesses, whether small or large, go through insolvency too.  While it may seem easy to explain that insolvency means you don’t have enough money, it does have some intricacies to it.  When a person is declared insolvent it means that they may not have enough cash or other assets, such as property or stock which may be sold to raise money. 

Insolvency is of two types - Cash flow insolvency and Balance sheet insolvency. Cash flow insolvency simply means you don’t have the cash to pay for your dues but you may have other assets.  This is not as serious as ‘Balance sheet’ insolvency which means you don’t have enough assets which could be sold to pay your dues. Insolvency and Bankruptcy are not the same thing, but sometimes closely follow one another.

One of the ways out of insolvency is to look at debt relief programs.  Once you have looked at all the money and assets you have, look at the biggest debt which seems to be causing the insolvency. If it is a mortgage, seek help from your mortgage company.  Reducing spending on your credit card will help in decreasing your liabilities.

Insolvency is basically some kind of financial situation or a condition that is experienced by any person or business entity. It is mostly referred to as a synonym for bankruptcy. It is considered to be a path of legal; finding of bankruptcy. In terms of corporation or even a company, it is illegal to continue the business in insolvency.

Under the Uniform Commercial Code, in the United States, any individual is considered to be "insolvent" when the party has ceased to reimburse its amount that is unpaid in the normal routine of business, or cannot compensate its overdue amount as they become owed, or is bankrupt inside the meaning of the Bankruptcy Code.