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What is Insolvency?
Insolvency refers to a term for when an organization or individual cannot meet its obligation to pay debts as they become due. Under the US Bankruptcy code and the Internal Revenue Code, insolvency is generally when one's debts exceed their assets.
Just because a business has debts that exceed it's assets does not mean that it is in financial trouble. Many growth-based businesses are technically insolvent. Insolvency generally leads to financial distress when the business is unable to acquire or secure funds to pay its debt obligations as they become due. In such a situation, the business may consider filing for bankruptcy protection.
Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY
Related Topics
- Bankruptcy Law (Intro)
- What is Bankruptcy?
- Insolvency - Definition
- What are the types of business bankruptcy?
- Chapter 9 Bankruptcy
- Chapter 12 Bankruptcy
- Chapter 15 Bankruptcy
- Who are the participants in the bankruptcy process?
- Key concepts behind the bankruptcy process?
- Absolute Priority Rule
- Pari Passu
- What rules govern the bankruptcy process?
- Bankruptcy Abuse Prevention and Consumer Protection Act
- American Bankruptcy Institute Definition
- What the authority of the bankruptcy court?
- What is the authority of the trustee (debtor in possession) in bankruptcy?
- Debtor in Possession
- What assets of the debtor are included in the bankruptcy estate?
- Bulk Sales Law
- What is the automatic stay in bankruptcy?
- What is a claim by creditors of the bankruptcy estate?
- What is voluntary and involuntary bankruptcy?
- What is the Chapter 7 bankruptcy process?
- What is the Chapter 11 bankruptcy process?
- How to File Bankruptcy for a Business
- Accept or reject contracts?
- Avoiding powers?
- Stay of Proceeding?
- Use of Business Assets?
- Post-Petition Financing?
- Bankruptcy Financing - Definition
- What is the appointment of a Trustee or Examiner in business bankruptcies?
- What is a Plan of Reorganization?
- Reorganization - Definition
- Subordinated Debt
- Preferred Debt
- What is Cramdown of a reorganization plan?
- To what extent does the bankruptcy process relieve a debtor's debts?