Insolvency

AAA

DEFINITION of 'Insolvency'

When an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due. Insolvency can lead to insolvency proceedings, in which legal action will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts.

BREAKING DOWN 'Insolvency'

Before an insolvent company or person gets involved in insolvency proceedings, it will likely be involved in more informal arrangements with creditors, such as making alternative payment arrangements. Insolvency can arise from poor cash management, a reduction in the forecasted cash inflow or from an increase in cash expenses.

RELATED TERMS
  1. Death Knell Stocks

    The shares of a publicly traded company that is on the verge ...
  2. Debt Relief

    The reorganization of debt in any shape or form, so as to provide ...
  3. Accounting Insolvency

    A situation where the value of a company's liabilities exceeds ...
  4. Gross Negative Fair Value - GNFV

    An assessment of the total fair value of a financial institution's ...
  5. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  6. Debt Fatigue

    When a debtor stops making payments on his or her debts and starts ...
Related Articles
  1. Stock Analysis

    Southwest Airlines: Delta's Worst Enemy?

    Learn about the rivalry between Southwest Airlines and Delta. For decades, Delta was the major operator in the South, but it has been displaced by Southwest.
  2. Options & Futures

    Haunting Wall Street: The Halloween Terminology Of Investing

    Beware of zombies and Jekyll and Hyde companies! Read about the spooky terms circulating Wall Street.
  3. Retirement

    What You Need To Know About Bankruptcy

    Don't choose this last-resort option until you learn how it will affect your future.
  4. Investing News

    Canada in Recession

    On September 1, 2015, Statistics Canada reported that the economy has contracted by 0.5% in Q2 2015, after falling 0.8% in previous quarter.
  5. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  6. Credit & Loans

    How Long Bankruptcy Will Affect You

    How long will the sad chapter of bankruptcy impact the rest of your life?
  7. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  8. Credit & Loans

    What's a Nonperforming Loan?

    A nonperforming loan is any borrowed sum where the borrower has failed to pay scheduled payments for at least 90 days.
  9. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  10. Economics

    A Look at Greece’s Messy Fiscal Policy

    Investigate the muddy fiscal policy, tax problems, and inability to institute austerity that created the Greek crises in 2010 and 2015.
RELATED FAQS
  1. What does it mean when a derivative is marked to market?

    When a derivative is marked to market, it means the derivative is valued and accounted based on its market value rather than ... Read Full Answer >>
  2. What is the difference the operating cash flow ratio and solvency ratio?

    The operating cash flow ratio and the solvency ratio are two different measures used in fundamental analysis of a company. ... Read Full Answer >>
  3. How do interest rates and debt ratios affect the price of a blue-chip stock?

    Blue-chip stocks are affected by interest rates and debt ratios, but not to the extent that stocks of less-established companies ... Read Full Answer >>
  4. Can entities other than banks issue letters of credit?

    Legally speaking, any entity may issue a letter of credit; does not necessarily have to come from a bank. Other creditworthy ... Read Full Answer >>
  5. What burst the Mississippi bubble?

    In 1715, France was essentially insolvent as a nation. Even though taxes were raised to extremely high levels, the hole ... Read Full Answer >>
  6. What happens to the stock of a public company that goes bankrupt?

    Occasionally, publicly listed companies go bankrupt. The company's shareholders, depending on the type of stock they hold, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Depreciation

    1. A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both ...
  2. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  3. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  4. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  5. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  6. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!