Bankruptcy – This is the legal process in which a person or firm declares inability to pay debts. Upon a court declaration of bankruptcy, a person or firm surrenders their assets to a court-appointed trustee, and is relieved from the payment of previous debts. The assets are then liquidated and used to pay of any outstanding debt.
Bankruptcy is a last resort for those with debt problems, and although while it may wipe the slate clean (to some extent) in terms of debt, it is extremely harmful to your credit rating, and will no doubt affect the way you are handled by financial organisations in the future.