What is the difference between bankruptcy and insolvency?

Certainly! The terms **bankruptcy** and **insolvency** are related but distinct concepts in finance and law, and understanding the difference can help clarify how financial distress is handled. **Insolvency** is a financial state. It means that an individual or a company is unable to meet their debt obligations as they come due or that their liabilities exceed their assets. In other words, insolvency describes a situation where a person or business owes more money than they can pay. Insolvency can be temporary or permanent, and it does not automatically mean that legal action has been taken. **Bankruptcy**, on the other hand, is a legal process. It is a formal procedure initiated by an insolvent individual or entity (or sometimes by creditors) through the court system. Bankruptcy provides a legal framework for resolving insolvency by either liquidating assets to pay creditors or reorganizing debts. The goal of bankruptcy is to either discharge debts, restructure repayment, or fairly distribute assets among creditors under court supervision. To summarize: - **Insolvency** is the financial condition of being unable to pay debts. - **Bankruptcy** is the legal process that may follow insolvency to resolve debt issues. Not all insolvent parties file for bankruptcy; some may negotiate with creditors outside of court or find other solutions. But bankruptcy is a formal recognition of insolvency and provides a legal mechanism to address it.