What is bankruptcy?

Bankruptcy is a legal process that provides individuals or businesses the opportunity to eliminate or restructure their debts when they are unable to meet their financial obligations. This process is designed to give a fresh start to the debtor while ensuring fair treatment of creditors. When a person or business files for bankruptcy, they enter into a legal framework that allows them to deal with their debts under the protection of the law, which can lead to either the discharge of certain debts or a court-approved plan for repaying them.

This specific function of bankruptcy helps both the debtor, who may be struggling financially, and the creditors, who seek to recover some portion of the owed amount. Other options listed, such as methods of savings, insurance, or investments, do not capture the legal and financial complexity surrounding bankruptcy, which is primarily aimed at managing insurmountable debt through legal avenues.