Insolvency

Loading the player...

What is 'Insolvency'

Insolvency is 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. Accounting Insolvency

    A situation where the value of a company's liabilities exceeds ...
  2. Bankruptcy Risk

    The possibility that a company will be unable to meet its debt ...
  3. Junior Security

    A security that ranks lower than other securities in regards ...
  4. Insurance Guaranty Association

    An organization that protects policyholders and claimants in ...
  5. Bridge Bank

    A bank authorized to hold the assets and liabilities of another ...
  6. Financial Risk

    The possibility that shareholders will lose money when they invest ...
Related Articles
  1. Economics

    Understanding Insolvency

    Persons or businesses that cannot meet their financial obligations are insolvent.
  2. Budgeting

    1. Negative Cash Flows

    Companies provide distress signals long before they go under. Find out how to read them.
  3. Taxes

    No Free Lunch

    Are there advantages to having the highest taxes in the world? Let's take a look at what the citizens in these countries get for their money.
  4. Retirement

    Introduction To Annuities: Fixed Contracts

    In the previous two sections, we covered the basic characteristics common to all annuity contracts. In this section we will explore fixed annuities and the features unique to them in more detail. ...
  5. Investing Basics

    Take It In Small Doses

    Ignoring a big tax bill will only increase your pain. Fortunately, there are ways to diffuse the tax time bomb before it explodes.
  6. Investing Basics

    Understanding Cash Management

    Cash management is a broad term that applies to the collecting, managing and investing of cash.
  7. Fundamental Analysis

    Financial Analysis: Solvency Vs. Liquidity Ratios

    Solvency and liquidity are equally important for a company's financial health. A number of financial ratios are used to measure a company’s liquidity and solvency, and an investor should use ...
  8. Investing Basics

    8 Signs Of a Doomed Stock

    Nothing is ever certain, but these eight signs can help you determine if a stock is about to crash.
  9. Economics

    Explaining Debt

    Debt is any amount a borrower owes a lender.
  10. Economics

    Explaining Debt Service

    Debt service is a measure of a person or entity’s use of cash to pay interest and principal on debt obligations.
RELATED FAQS
  1. I know there is a form of deposit insurance where a portion of my bank account deposits ...

    First things first, it's only partially correct to think that a portion of your bank deposits is protected. The Federal Deposit ... Read Answer >>
  2. What's the difference between the coverage ratio and the liquidity coverage ratio?

    Understand the difference between coverage ratios and the liquidity coverage ratio and why the liquidity coverage ratio rule ... Read Answer >>
  3. What is the difference between a bank's liquidity and its liquid assets?

    Understand the relationship between a bank's liquid assets and its liquidity and how the financial crisis demonstrated the ... Read Answer >>
  4. What are some strategies companies commonly use to reduce their debt to capital ratio?

    Explore the different strategies that companies can employ and steps that can be taken to reduce a company's debt to capital ... Read Answer >>
  5. Are current assets liquid or capital?

    Take a deeper look at liquid current assets for businesses and individuals, and learn how they differ from other types of ... Read Answer >>
  6. What role did junk bonds play in the financial crisis of 2007-08?

    Discover the role that junk bonds played in the financial crisis of 2007-2008. The main issue is that toxic housing debt ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center