Which term describes the legal process that grants an individual a fresh financial start by discharging debts?

Bankruptcy is the legal process that allows individuals or businesses to eliminate or reduce their debts under the protection of the bankruptcy court. It provides a financial reset or fresh start for those overwhelmed by debt, enabling them to either discharge their obligations or create a plan to repay them over time. This process is specifically designed to help individuals who cannot manage their debts, ensuring they have a path forward without the burden of insurmountable financial obligations.

The concept of bankruptcy encompasses different types, including Chapter 7, where debts are discharged, and Chapter 11 or Chapter 13, which may involve reorganization or repayment plans. In essence, the primary function of bankruptcy is to provide relief and a chance for individuals to regain control of their financial futures, emphasizing the legal recognition of an individual's inability to pay debts.

While reorganization typically refers to restructuring debts to allow repayment while under financial distress, and liquidation involves selling off assets to pay creditors, these terms do not capture the broader protective and fresh-start characteristics associated with bankruptcy. Debt relief is a general term that covers various strategies, but it does not specifically denote the legal proceedings and protections afforded under bankruptcy.