Insolvency refers to a situation in which a borrower cannot pay its lenders back on schedule. Insolvent companies usually have liabilities that exceed their total assets, while individuals who are insolvent simply do not have enough income to repay their debts.
Bankruptcy, on the other hand, is a legal process that businesses or people go through to address insolvency. Although all companies and individuals declaring bankruptcy agree to pay back their debts according to the terms of the bankruptcy agreement, there are several specific types of bankruptcy. For example, Chapter 7 bankruptcy, also called liquidation bankruptcy, requires debtors to sell specified assets to generate the funds necessary to pay down their debts.