What legal process allows a debtor to manage an unmanageable financial situation?

Bankruptcy is a legal process that provides individuals or businesses facing overwhelming financial difficulties an opportunity to reorganize their debts or liquidate their assets in a structured manner. This process is designed to give debtors a fresh start while ensuring that creditors receive as much repayment as possible under the circumstances.

When a debtor files for bankruptcy, they can halt collection actions from creditors, which provides immediate relief and prevents further financial pressure. The filings may fall under different chapters, such as Chapter 7 or Chapter 13 in the United States, which provide various frameworks for either discharging debts or creating a repayment plan.

In contrast, foreclosure refers specifically to the legal process of a lender taking possession of a property when the borrower fails to keep up with mortgage payments. Insolvency is a state of financial distress where liabilities exceed assets but is not a legal process itself. Liquidation involves selling off assets to pay debts, often associated with bankruptcy but not a managed approach to resolving debts like bankruptcy is.

Overall, bankruptcy serves as a crucial legal avenue for individuals and businesses seeking to regain financial control when faced with insurmountable debt.