What do you call the legal proceeding involving a person or business that is unable to repay outstanding debts?

Bankruptcy is the legal process that allows individuals or businesses facing overwhelming debt to seek relief under the protection of the law. This proceeding provides a structured way to either discharge some debts or reorganize the debtor's financial obligations. When a bankruptcy case is filed, it can halt collections from creditors, giving the debtor a chance to rehabilitate their financial situation.

This option is particularly significant because it not only involves legal protection but can also facilitate a fresh start for the debtor, whether through the liquidation of assets to repay creditors or through a repayment plan over time. The implications of filing for bankruptcy can be profound, impacting credit scores and future financial opportunities, but it serves as a necessary relief mechanism for those truly unable to meet their debt obligations.

Other terms, while related, do not capture the comprehensive legal framework or the protective aspects of bankruptcy. Insolvency refers generally to the state of being unable to pay debts as they come due, but it is not a legal process on its own. Foreclosure pertains specifically to the process of reclaiming property when mortgage payments are not met. Liquidation involves selling off assets to settle debts but does not necessarily entail the legal protections and structured proceedings associated with bankruptcy.