Bankruptcy Definition

Bankruptcy is the process whereby an individual or a corporation legally is declared to be unable to pay creditors and all or a portion of outstanding debts are simply discharged. Creditors may petition a court to declare forced bankruptcy of a debtor in a process known as involuntary bankruptcy. In the USA, it is rare for individuals to face involuntary bankruptcy.

Far more common is the process of voluntary bankruptcy where debtors seek bankruptcy protection from the courts. In theory, an individual can self-file for bankruptcy, but in actual practice a bankruptcy attorney should always be consulted. Unsurprisingly, they request payment up front. All bankruptcy proceedings are noted on the individual’s credit report and remain on the report for a period of at least ten years.