Duhaime's Law Dictionary

Insolvent Definition:

A person not able to pay his or her debts as they become due.

Related Terms: Bankruptcy, Acceleration Clause, Bankrupt

In Dewey v St. Albans Trust, Justice Rowell wrote:

"The term insolvency is not always used in the same sense. It is sometimes used to denote an insufficiency of the entire property and assets of an individual to pay his debts. This is its general and popular meaning.

"But it is also used in a more restricted sense, to express the inability of a party to pay his debts as they become due in the ordinary course of business."

Thus, in the Sale of Goods Act 1979 (United Kingdom), an insolvent person is described as follows:

"A person is deemed to be insolvent within the meaning of this Act if he has either ceased to pay his debts in the ordinary course of business or he cannot pay his debts as they become due, whether he has committed an act of bankruptcy or not."

Usually, insolvency is a prerequisite to an application for bankruptcy protection.


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