Insolvency is the inability of a debtor to pay their debt.Question 6Select one:TrueFalse

The statement "Insolvency is the inability of a debtor to pay their debt" is indeed true.

Insolvency occurs when an individual or organization cannot meet their financial obligations to creditors as debts become due. This situation is a critical point in finance and law, indicating potential bankruptcy or the need for restructured repayment plans. Essentially, insolvency reflects a negative cash flow status, which can arise from various factors such as poor financial management, unexpected expenses, or downturns in business.

Legally, insolvency can lead to bankruptcy proceedings if a creditor takes action to claim the owed amounts. There are two types of insolvency: cash flow insolvency, where one can’t pay debts as they arise, and balance sheet insolvency, where total liabilities exceed total assets. Thus, understanding insolvency is crucial for both businesses and individuals to navigate financial difficulties effectively.

Final Answer

True