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An incapacity to pay debts upon the date when they become due in the ordinary course of business; the condition of an individual whose property and assets are inadequate to discharge the person's debts.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.


n. 1) the condition of having more debts (liabilities) than total assets which might be available to pay them, even if the assets were mortgaged or sold. 2) a determination by a bankruptcy court that a person or business cannot raise the funds to pay all of his/her debts. The court will then "discharge" (forgive) some or all of the debts, leaving those creditors holding the bag and not getting what is owed them. The supposedly insolvent individual debtor, even though found to be bankrupt, is allowed certain exemptions, which permit him/her to retain a car, business equipment, personal property, and often a home as long as he/she continues to make payments on a loan secured by the property. (See: bankruptcy)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.


1 inability to pay debts as they fall due.
2 excess of liabilities over assets.
Collins Dictionary of Law © W.J. Stewart, 2006

INSOLVENCY. The state or condition of a person who is insolvent. (q. v.) .
     2. Insolvency may be simple or notorious. Simple insolvency is the debtor's inability to pay his debts; and is attended by no legal badge of notoriety, or promulgation. Notorious insolvency is that which is designated by some public act, by which it becomes notorious and irretrievable, as applying for the benefit of the insolvent laws, and being discharged under the same.
     3. Insolvency is a term of more extensive signification than bankruptcy, and includes all kinds of inability to pay a just debt. 2 Bell's Commentaries, 162, 6th ed.

A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John Bouvier. Published 1856.
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