Sicknesses, losing your job, losing your spouse or any other difficult hardship can strike you at any time in your life. When these things tend to happen, they are compounded with other problems like debt and spending tons of money to get yourself out of a hole. Debt can oftentimes make recovery from these hardships even worse.
What bankruptcy does is let people deal with this mounting debt they have or are accumulating from some sort of hardship in their life by allowing them to sort of strike a deal with their creditors. After you finish your bankruptcy, most if not all of your debt is wiped cleaned and you get a new start at rebuilding your life.
Bankruptcy is usually categorized in two common types: Chapter 7 and Chapter 13. Chapter 7 is essentially “liquidating the debtor’s non exempt property and distribute the proceeds to the creditors in order of priority” Basically they will take whatever tangible things that are worth value to pay back the debt excluding property. Chapter 13 basically reorganizes your debt and you are allowed to retain your tangible goods. You will be paying back some of the debt but it has just been reorganized and most likely lessened in value.
Here is a brief explainer video: