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Insolvency happens when a person or business can’t pay their debts on time. It means they owe more money than they can afford to repay. There are two main types of insolvency: cash flow insolvency, where you can’t pay your bills when they’re due, and balance sheet insolvency, where your total liabilities exceed your assets. Insolvency can lead to legal actions like bankruptcy for individuals or liquidation for companies. It’s important to seek professional advice if you’re facing insolvency, as there may be ways to restructure your finances or negotiate with creditors before things reach that point.