This paper studies whether default is triggered by insolvency (low market asset values relative to debt) or by illiquidity (low cash reserves relative to current liabilities), corresponding to economic versus financial distress. Although most firms at default are distressed both economically and financially, the two factors are distinct: A quarter of defaults are either by insolvent firms with abundant cash, or by solvent firms in a cash crisis. Consistent with the core assumptions of structural models of risky debt, the market value of assets is the most powerful factor explaining the timing of default by far, outperforming most other commonly used variables put together. By contrast, the marginal contribution of illiquidity is much smaller and depends on financing constraints that restrict the firm’s access to external financing.