Bankruptcy is a legal court proceeding filed in Federal Bankruptcy court. There are different types of bankruptcy known by the chapter where they appear in the law (Chapter 7, ch 11, ch 12, ch 13) Both companies and individuals can file for bankruptcy. It will allow you to protect certain assets and allow you to avoid repaying certain debt. You have some state rights as well as federal rights about what you can keep and hat you have to give up (remember Toni Braxton had to auction off her Grammy?).
Personally, I think it is a good thing for those who truly need it. For instance, I have a friend whose husband left her with their daughter. She alone does not make enough money to pay the rent and day care and buy food none the less pay the car note and credit card bills (which unfortunately are all in her name although it is their joint expenditures) She is filing bankruptcy. If she can get out form under the unsecured debt, she can afford the necessities (although just barely) It is still a vast improvement over where she is now. That is one situation, the other is the person who simply was irresponsible, shopped til they dropped and not a s a result of a sudden hardship or medical bills or emergency or whatever got in over their head. One deserves the help more than the other but we do not distinguish. I feel their are abuses that occur and that it is "forgiven" by the credit industry quickly, maybe too quickly. I think it is part of how they encourage us to get in such dire straits in the first place- bombarding college kids and young people with credit cards they know they cannot afford or handle, etc. (I mean really, how do you give a person with no income or a work study job a credit card???)
Whew, that is my tirade. Clearly, all people who file bankruptcy are not gaming the system. Even those who ended up in a hole due to inability to manage their finances are not bad or doing it intentionally (most of the time) To learn more, check out the following links.
http://profs.lp.findlaw.com/bankruptcy/index.html
http://www.law.cornell.edu/topics/bankruptcy.html
(*and I am sure we all know that although I am a lawyer, nothing about this post should be construed as legal advice, right?
)