How is "insolvency" defined?

Insolvency is defined as the inability to pay debts as they are due. This definition captures the essence of insolvency — it fundamentally reflects a financial condition where an individual or organization cannot meet its existing obligations to creditors when those debts come due. This distinction is crucial as it can lead to various legal processes, such as bankruptcy or liquidation, but at its core, insolvency pertains to cash flow issues and an overall inability to fulfill debt obligations on time.

While the process of filing for bankruptcy is related to insolvency, it is simply a legal action taken following insolvency and not a definition of insolvency itself. Legal restructuring is also associated with insolvency but describes a possible remedy or solution rather than defining the condition. Similarly, the legal status of a corporation can refer to many aspects of its existence, and while an insolvent corporation may face legal scrutiny, the term does not exclusively define insolvency. Thus, focusing on the inability to pay debts offers the clearest and most accurate definition of insolvency.