BANKRUPTCY: Insolvency Defined

Andrew Daniel Myers

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Bankruptcy Attorney

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Posted almost 4 years ago. 1 helpful vote

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Everyone has a sense of what the term "insolvency" means, and one who does not have the money to bay bills as they become due is, in fact, under most definitions considered to be insolvent. However, the bankruptcy law has its own technical definition, which specifies that in the bankruptcy context, "insolvency" generally means:

(A) with reference to an entity other than a partnership and a municipality, financial condition such that the sum of such entity's debts is greater than all of such entity's property, at a fair valuation, exclusive of: (i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity's creditors; and (ii) property that may be exempted from property of the estate under section 522 of this title;

(B) with reference to a partnership, financial condition such that the sum of such partnership's debts is greater than the aggregate of, at a fair valuation: (i) all of such partnership's property, exclusive of property of the kind specified in subparagraph (A)(i) of this paragraph; and (ii) the sum of the excess of the value of each general partner's nonpartnership property, exclusive of property of the kind specified in subparagraph (A) of this paragraph, over such partner's nonpartnership debts; and

(C) with reference to a municipality, financial condition such that the municipality is: (i) generally not paying its debts as they become due unless such debts are the subject of a bona fide dispute; or (ii) unable to pay its debts as they become due. This definition is found under U.S. Bankruptcy Code section 101(32)

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This answer is offered for informational purposes only. It is not offered as, and does not constitute, legal advice. Laws vary widely from state to state. You should rely only on the advice given to you during a personal consultation by a local attorney who is thoroughly familiar with state laws and the area of practice in which your concern lies.

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