The inputs provided by Vaibhav Chaturvedi, Sooraj Menon and Pradeep Kumar are gratefully acknowledged. 1  liquidate his assets and pay off creditors to ensure that no default takes place. In such a situation, the borrower is said to have become insolvent. Unfortunately, in real-world situations, it is not easy to ascertain whether a borrower has become insolvent till the time a default occurs.
Mostly, by then, the marketable value of the assets of the borrower would have already fallen below its liabilities.