FINANCIAL DISTRESS
Liquidity Crisis
A crisis of liquidity arises from shortage of funds available to cover immediate obligations. Liquidity crisis may be temporary and does not necessarily reflect systematic financial or other issues. Liquidity crisis is often imposed by external factors. For example, unexpected temporary disruption of the source of income, extraordinary expenses, or dried-up short-term borrowing may all lead to a cash crunch.
Fundamental Insolvency
Systematic issues, such as high leverage or non-sustainable business model, lead to more serious and protracting financial issues that lead to fundamental insolvency. There is no easy fix or quick patch that may have, but rather deep changes are required to get that broken business or personal financial affairs on track.
Bankruptcy
Reorganization is often not possible without forced arrangements with creditors who might be interested in getting their money back rather than in the future and/or well-being of their debtor. Bankruptcy protection offers companies and individuals sometimes much needed second chance to breath new life in their may or may not work. Then liquidation of assets and obligations for an entirely fresh start might be the only option.