insolvency

Definition from Nolo’s Plain-English Law Dictionary

1) Generally, the state of having more debts than assets or being unable to pay debts as they come due. 2) For tax purposes, when a person who has had a debt cancelled still has more debts than assets. Someone who is insolvent even after a debt is cancelled does not have to pay income tax on the amount of the cancelled debt.

Definition provided by Nolo’s Plain-English Law Dictionary.