Bankruptcy, in finance and legal arenas, refers to a process whereby a person or business who is unable to pay their debts, may petition a court for relief (in whole or in part) from having to repay the debts, or to obtain more time to do so.
Not all persons or businesses end up bankrupt as a result of poor financial decisions: economic downturns or technological changes may result in reduced demand for a product, or an accident or illness may leave a person with huge medical bills.
In the United States, bankruptcy proceedings are handled under the United States Bankruptcy Code and are overseen by a bankruptcy court (which falls under the jurisdiction of the equivalent United States District Court, but exclusively handles bankruptcy hearings). A filing (formally, a petition) may either be voluntary (where the debtor seeks relief; this is most common with personal bankruptcies) or involuntary (where the creditors seek to be paid at least part of what they owe; this is most common with business bankruptcies where the creditors believe that the business will never recover to pay the debts in full).
The debtor must file a listing of assets and liabilities, after which time notice is provided to creditors (and, to discourage a debtor from omitting a liability, public notice is also published) to respond to the accuracy of the filing. After all parties have had the chance to be heard, the court makes its ruling (frequently, the parties come to an agreement which the court accepts). In a more complex case, an administrator (or trustee) may be assigned to see the case through resolution. In some instances, the debtor may be permitted to resolve the case without a trustee (the formal term is debtor in possession), such as when all parties agreed to the resolution even before the case was filed.