When a person or business cannot pay all their debts when they are due, they are considered to be insolvent.
The financial model for most individuals and businesses is quite simple. Money is earned, and money is paid out.
The aim, of course, is to ensure that the money coming in is more than, or at least equal to, money going out in bills and expenses. Any money left over after paying bills is known as profit for a company, or disposable income for an individual.
When the money paid out is more than the money coming in, debts are accrued. These may be in the form of credits cards, overdrafts, unpaid salaries, invoices, overdue rent or mortgage, tax owed, or simply unpaid bills.
If those bills cannot be paid when they are due, the business or individual is considered to be insolvent.
There are several options for the insolvent business or individual. An ARITA insolvency practitioner can help you work through the situation, before deciding what action needs to be taken.
Insolvency explained topics