Bankruptcy is when a person or business legally declares themselves unable to pay outstanding debts. Debt can pile up fast putting an individual or a family in a difficult financial position. Without a safety net, it would be hard for people to get back on their feet. Bankruptcy provides people the opportunity to get out of debt while treating creditors in a fair manner. The debtor (person filing bankruptcy) will have the ability to start over without the looming burden of unpaid bills. There are many chapters of bankruptcy, but the two most popular are liquidation (chapter 7) or reorganization (chapter 13).
What does "declaring bankruptcy" really mean? Mainly, the process releases the debtor from personal liability for certain debts through a court order. The discharge also prohibits creditors or collections agencies from communicating with debtors. But when you declare bankruptcy, it can substantially hurt your credit rating and limit your financial options going forward.
Not every bankruptcy case needs an attorney, but in many cases, legal assistance can be beneficial, if not crucial. Given the complexity of many bankruptcy cases, it helps to have a knowledgeable resource for information.