Insolvency happens when your liabilities outweigh your assets. If you are unable to pay your outstanding debts, you are considered insolvent. Insolvency can happen after a sudden job loss, unexpected illness, or from credit card debt. Nearly half of American households have credit card debt. Unlike other forms of debt, credit cards often have high interest rates that compound when you don’t pay the bill in full every month. Payment history has a large impact on your credit score, so insolvency can have a major impact. Insolvency can also lead to more serious financial situations like bankruptcy.