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Insolvent Condition
In its most simple terms "insolvent" means that an individual or business cannot meet their obligations to their debtors. There are, however, distinctions in the nature of insolvency. When a business or individual has more liabilities than assets the state is said to be one of "balance sheet insolvency." If, however, the individual or business cannot pay their debts, the term used is "cash flow insolvency." Frequently the terms "insolvent" or "insolvency" are erroneously used in popular speech as synonyms for bankruptcy.
While it is true that a declaration of insolvency often precedes a declaration of a condition of bankruptcy, a bankruptcy is a court action that necessitates the payment of various court fees. Therefore, it is possible for a person or business to be insolvent but not to be legally bankrupt. Under the terms of the U.S. Bankruptcy Code an individual is said to be in a state of insolvency when they cannot pay the debts that arise from the normal conduct of business or cannot pay oth er obligations that come due.
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