The Difference between Insolvency and Bankruptcy Many people often mix up the terms “insolvency” and “bankruptcy,” assuming them to mean the same thing. However, these two words, though similar, actually have different meanings. Simply speaking, insolvency is a financial state of being – one that is reached when you are unable to pay off your. Know the difference between bankruptcy & insolvency. Read this short bankruptcy definition & call us for more info. Insolvency and bankruptcy are two terms that are often closely associated when talking about debt. However, they have very different meanings. Insolvency refers to a financial state, while bankruptcy is a legal procedure. The Bankruptcy and Insolvency Act (BIA) is the law regulating insolvency and bankruptcy in Canada. What is insolvency? People are considered to be insolvent when they are.