Definition
of Insolvency
Insolvency is called the absence
of solvency . The idea of solvency, in turn, alludes to the lack
of debts or the ability to pay that allows you to satisfy what is
owed .
Insolvency, therefore, refers to the inability
to pay a debt . Who is insolvent is not in a position to fulfill
a financial obligation.
For example: "We had to modify the
project as it led to economic insolvency" , "The increase
in costs and the drop in passengers mean that almost all transport companies
are in a situation of insolvency" , "I am concerned about
the insolvency of my brother-in-law, I lent him money a year ago and he has not
returned anything yet . "
In the field of accounting ,
solvency is the indicator that relates the assets and liabilities of
a person, whether legal or physical. If a company has a total asset
of 10,000 pesos and a total liability of 5,000 pesos , the
total active / total liability ratio is 2 (for each peso of
liabilities, it has 2 pesos of assets). If the situation were reversed,
with a total asset of 5,000 and a total liability of 10,000
pesos , the entity would be in a situation of insolvency, since it would
have 2 pesos of liabilities for each peso of assets.
At a legal level, the idea of insolvency is
used with respect to the person who does not have the necessary
liquidity to face the payment of their obligations . The insolvency
supposes the impossibility to satisfy a debt: when entering in suspension
of payments , a creditors' contest is carried out and a
plan is established so that the debtor can fulfill.
