Bankruptcy is a legal process initiated by a debtor to relieve themselves of the obligation to pay outstanding debts that have escalated beyond their ability to pay. It involves assessing and selling debtor assets to generate funds to partially repay creditors. Once completed, the debtor is free of all debt obligations but their credit will be negatively impacted for at least 10 years. Bankruptcy categorizes filings under Chapters 7, 11, and 13, with Chapter 13 allowing a repayment plan that can have less severe effects on credit scores.