Insolvency vs. Default

let's assume that on the first of August John loses his job and will no longer have an income stream furthermore we'll also assume he has no savings no assets and is also in debt with his personal loan payment being due on the 25th of each month as soon as he lost his job and noticed he had no savings John became insolvent in other words insolvency is a state of being in which you're incapable of meeting your financial obligations so as of the 1st of August we can say that John is insolvent then the 25th comes along and of course John will not be able to make his loan payment as of that point he is also in default or to put it differently a default is a specific event in which the debtor fails to make an agreed-upon payment to his creditor at an agreed-upon time next John realizes that his situation is desperate and ends up deciding to file for bankruptcy where bankruptcy being a legal process usually initiated by the debtor who declares himself unable to meet his financial obligations creditors recover what they can through procedures such as selling the debtors assets and after this process is over that letter starts with mostly a clean slate mostly is the operative word because there are certain loan types that are harder or even impossible to get rid of by declaring bankruptcy a good example would be student loans in the US which are extremely hard but not impossible to discharge furthermore a bankruptcy represents a strongly negative element on your financial resume and might make others think twice before working with you in the future all in all we can conclude that one insolvency is the state of being in which a person or entity doesn't have enough money and/or assets to meet his financial obligations to a default is an event and we say that a default occurred when a person or entity fails to make an agreed upon payment to creditors on time 3 a bankruptcy is a legal process through which the debtor declares he can no longer pay creditors back and creditors who work with the authorities so as to recover whatever they can