When does bankruptcy occur?

Bankruptcy occurs when an individual or business is unable to repay their outstanding debts and seeks legal relief from creditors. This process typically involves filing a petition in a bankruptcy court, which can lead to the restructuring of debts or liquidation of assets to pay off creditors. The goal of bankruptcy is to provide a fresh financial start while ensuring equitable treatment of creditors. Different types of bankruptcy, such as Chapter 7 or Chapter 13 in the U.S., dictate the specific procedures and outcomes.