Bankruptcy is the legal process whereby individuals or companies with debt problems have these debts forgiven. This happens in cases where it is no longer possible for the debtor to repay the debt. Bankruptcy often eliminates debts that are unsecured, such as credit card debt and personal loans that do not have collateral, but some debts, such as student loan debt or child support, do not qualify for discharge. By discharging these debts, bankruptcy allows people or companies to financially start over again without impossible debt burdens.

However, because people's financial situations are different, there are several different types of bankruptcy. For example, Chapter 7 bankruptcy discharges all debts, but your income must fall below a certain amount and you also have to give up many of your assets. This is different than a Chapter 11 bankruptcy, which sets up a 3 or 5 year repayment plan, after which the remaining debt is discharged. Although bankruptcy will also have negative implications, such as a lower credit score, the debt relief provided by bankruptcy can be helpful in some cases.