What is insolvency?

What Does insolvency Mean

In Latin is where we find the etymological origin of the term insolvency that we are now going to analyze in depth. Exactly it derives from the word “insolventia”, which can be translated as “that does not dissolve” and that is the result of the union of several lexical components of said language:

-The prefix “in-”, which means “no” or “ without".

-The verb "solvere", which is equivalent to "release" or "release".

-The particle “-nte-”, which is a suffix used to indicate “agent”.

-The suffix “-ia”, which is used to indicate “quality”.

Insolvency is called the absence of solvency . The idea of ​​solvency, in turn, refers to the lack of debts or the ability to pay that allows to satisfy the debt .
Insolvency, therefore, refers to the inability to pay a debt . Whoever is insolvent is not in a position to meet a financial obligation.

For example: “We had to modify the project as it led us to financial insolvency” , “The increase in costs and the fall in passengers make almost all transport companies find themselves in a situation of insolvency” , “I am concerned the insolvency of my brother-in-law, I lent him money a year ago and he still hasn't returned anything ” .
Bankruptcy, crisis, debt, suspension of payments, impoverishment, ruin, destitution and even discredit are other words that function as synonyms for insolvency. On the contrary, among its antonyms are terms such as wealth, bonanza, guarantee or credit.
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 asset / total liability ratio is 2 (for each weight of liability, it has 2 pesos of assets). If the situation were reversed, with a total assets 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 liability for each peso of assets.
At the 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 . Insolvency is the inability to meet a debt: a entering into receivership , is carrying out a bankruptcy and a plan for the debtor to fulfill established.
It is important to establish, in addition to everything indicated, that there are two types of insolvency within what is the scope of bankruptcy law:

-Current insolvency is the one that takes place when the debtor cannot fulfill his obligations when the creditors demand these from them, that is, when the aforementioned expire. In this situation, the legal obligation to proceed to request what is known as bankruptcy is imposed.

-Imminent insolvency, on the other hand, is that which occurs when the company in question is threatened by a specific circumstance and calculates that it will not be able to comply with the obligations it has.

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