Introduction: Over-indebtedness and insolvency are a problem for households in many countries around the world. This is a situation in which the debtor cannot repay all liabilities and making these payments on time is a big problem for households and society (financial exclusion). It is the result of many factors. Consumers who take out too many loans or take out too much money run the risk of becoming over-indebted and, in many cases, leading to insolvency. Aim: The article aims to examine the impact of financial literacy on limiting over-indebtedness and thus insolvency, understood as a situation in which the debtor has permanently lost the ability to settle its obligations, if payment arrears exceed three months and the debtor's situation is not a manifestation of temporary trouble. Method: The article is of a theoretical and empirical nature. On the one hand, it indicates the lack of comparability of research due to the lack of a uniform definition of both concepts, which leads to the need to define household over-indebtedness and insolvency. The article uses data from primary research done in Poland using the CAWI method. BIG 5 (Lusardi, 2011) and the Thru-False Test consisting of 25 questions were used as part of the questionnaire research. The result of this research is a model showing the influence of factors, including financial literacy, on household over-indebtedness and insolvency. The model was created using PLS-SEM. Findings: The results indicate that the level of insolvency risk is positively influenced by the diversification of assets, level of subjectively perceived internal threat, and level of financial literacy. The total effect of financial literacy on the risk of insolvency is positive. Originality and value: The added value is an original model showing the relationship between factors and the risk of household over-indebtedness and insolvency, with particular emphasis on financial literacy.