If we say we’re insolvent, it means that our hot mess of a financial situation is so dire that, even if we sold off everything of value we own, we probably still wouldn’t be able to cover our debts. This may go without saying, but we’re going to go ahead and say it anyway: insolvency is a, uh...bad financial place to be, for individuals and for businesses.
“Sounds a lot like bankruptcy,” some might say, and to them we would say, “No!” Insolvency is not bankruptcy. Insolvency, while definitely not the greatest financial state to be in, can be temporary. Cash flow issues happen, right? If we’re broke-ish this month but have a huge sale going through next month, our current insolvency isn’t the end of the world. Also, if we or our business is looking a little insolvent, we can make arrangements with our creditors so we don’t default on our debts or get forced into liquidating our assets. Bankruptcy is what happens when we can’t correct our insolvency, and need to involve the courts to get our financial selves squared away and our debts paid.
Related or Semi-related Video
Finance: What is a 1099?0 Views
Finance, a la shmoop. What is a 1099? Well it's a tax form for the rest of us the
non fully employed, the non recipients of crappy health care and benefit plans, the [Man looks shocked at his medical bill]
non recipients of fancy corporate business cards those of us who choose to [Business card for Brett Corporate]
go it on our own as consultants, contractors, day laborers and
independents who self employ under the yoke of many masters trying to make our [A contractors diary]
own little way in the world, yeah. Corporations who hire contractors in
whatever form, must deliver to those contractors a form 1099 which outlines [Corporation giving out 1099s to contractors]
and stipulates the details of the job performed for the contractee. That 1099
is a direct conduit to the IRS holding out their arm to shake your hand and [The form 1099s are sent to the IRS]
then turning it 90 degrees to the right. [IRS's hand out expecting something]
Up Next
What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...