It's a claim about what would happen given more time. Imagine I owe you a million dollars in cash, and also own a house that is probably worth about $1.5M. Hous

It's a claim about what would happen given more time. Imagine I owe you a million dollars in cash, and also own a house that is probably worth about $1.5M. Houses are not very liquid: each transaction takes a lot of slow evaluation, you need to find the right person, etc. Best case for turning it into cash at close to its value is about a month, often takes a few months. So if I suddenly needed to pay back my loan to you we could say I'm in a liquidity crisis: given time to liquidate I'm good for it (my net worth is positive) but I don't have the cash on hand now. On the other hand, if the house is actually only worth $750k, then my issue is solvency. Even taking time to sell the house for as much as possible I won't have enough to pay everything I owe, and will need to go into bankruptcy. And we don't know for sure until I actually try hard to sell the house. People running into issues of solvency often say that they are running into a liquidity issue, however, through some mix of wishful thinking, hoping for self-fulfilling prophecies, and lying.