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.

INVESTOPEDIA EXPLAINS '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. Risk-Based Capital Requirement

    A rule that establishes minimum required liquid reserves for ...
  4. Tombstone

    A written advertisement placed by investment bankers in a public ...
  5. Bankruptcy Risk

    The possibility that a company will be unable to meet its debt ...
  6. Liquidation

    1. When a business or firm is terminated or bankrupt, its assets ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. Why do banks used the Five Cs of Credit?

    Banks use rigorous policies and analyses when determining if and how much money to lend to clients. The methods used by banks ... Read Full Answer >>
  6. What can cause the rate of return to be negative?

    Several factors can cause an investment to have a negative rate of return. Poor performance of a company or companies, turmoil ... Read Full Answer >>
Related Articles
  1. 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.
  2. Retirement

    What You Need To Know About Bankruptcy

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

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.
  4. Credit & Loans

    Top Credit Cards For The Ultra Rich

    Only a few people qualify for these elite cards. The question is, are the lush perks big bucks can buy you worth the cost?
  5. Mutual Funds & ETFs

    6 ETFs to Fight Your Recession Jitters

    Are you worried about a recession? If so, consider these 6 ETFs.
  6. Credit & Loans

    Is My Credit Score Useful Outside The U.S?

    If you're hoping that your credit score will follow you overseas – or worried that it will– here's a quick primer on how your score will add up abroad.
  7. Investing

    When Will The Bull Market End?

    A few weeks ago, the current bull market celebrated its sixth anniversary, making it one of the longest in history.
  8. Economics

    Worried About a Recession? Then Buy These 5 Stocks

    What makes these stocks so resilient? And how did they perform during the last crisis?
  9. Credit & Loans

    Is It Worth Paying To Check Your Credit Score?

    Generally, a free credit report is all you need. If you've had some credit issues, it may be worth buying your credit score to get a finer level of detail.
  10. Credit & Loans

    New Rules That Could Trash (or Help) Your Credit

    Cable bills and similar financial obligations will soon be factored into your credit score. Good news if you're an on-time payer. If not, become one!

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center