insolvency risk

Insolvency risk refers to the possibility that an individual or organization will be unable to meet their financial obligations, meaning they can't pay their debts when they are due. This situation can arise from various factors, such as poor cash flow, excessive debt, or sudden financial losses. When insolvency occurs, the entity may have to undergo bankruptcy proceedings, where assets are liquidated to pay creditors. Understanding insolvency risk helps individuals and businesses manage finances effectively, ensuring they maintain sufficient resources to cover expenses and avoid potential legal and financial consequences.