Bankruptcy is a legal process whereby a person or business requests relief from their debts. The law allows a person or business to discharge (ie eliminate) various types of debts. Common debts would be credit cards, medical bills, auto repossessions, foreclosures, civil judgments, and even old tax debts. However, just because a person has debts does not automatically mean a bankruptcy is the best solution. There are numerous other factors to consider before the decision to file bankruptcy should be made.
One of the first things to consider is whether you have enough income to pay your life necessities and also pay your debts. If the answer is no than bankruptcy may be the best solution. However, if you can afford to pay your life necessities and also service your debts than perhaps bankruptcy is not the best solution. Perhaps negotiating settlements with your creditors would be more prudent.
Another factor to consider is what assets you own and whether you can protect them if you file a bankruptcy. Chapter 7 bankruptcy which is often referred to as the "fresh start bankruptcy" is also a liquidation bankruptcy. This means that you may have assets taken from you and liquidated by a bankruptcy trustee for the benefit of your creditors. Therefore, before you file, it is important to know what assets you can keep in your bankrupty and what assets you may lose.
Although there are many more technical issues to consider before filing a bankruptcy, the above mentioned issues are a good starting point. Bankruptcy is a powerful tool and should only be used if the situation calls for it.