Bankruptcy is a legal process that declares a person or business to be insolvent and absolves that person's or business' debts.
I particularly like this bankruptcy definition from the Government of Canada's Canadian Economy Online website because it includes an explanation of bankruptcy's causes and effects:
"A bankruptcy is a legal proceeding that occurs when the liabilities or debts of an individual or firm exceed their assets or revenues over an extended period of time. When individuals or firms declare bankruptcy, their assets are taken and allocated to various creditors, and courts may impose restrictions on their future borrowing capacities."
People can "go into bankruptcy" (that is, start bankruptcy proceedings) either voluntarily or be forced into bankruptcy by creditors.
In Canada, bankruptcy is governed by the federal Bankruptcy and Insolvency Act. The Office of the Superintendent of Bankruptcy Canada supervises the administration of the Act, as well as maintaining records of bankruptcy and investigating complaints.
When a person or business can no longer pay its debts, bankruptcy is not the only option. One other option is to File a Proposal; filing a Proposal (or an Intention to File a Proposal) immediately stops all legal actions by secured and unsecured creditors and can give you or your business a breathing space to get your financial situation sorted out.
