How is 'bankruptcy' best defined?

The concept of bankruptcy is best defined as a legal process for discharging debts, which serves a critical function in the financial system. When individuals or businesses encounter situations where they can no longer meet their financial obligations, bankruptcy provides a structured way to deal with these debts under the protection of the court. This legal process allows for the possibility of discharging or reducing unsecured debts, which can help the debtor achieve a fresh start financially.

This definition emphasizes the legal framework surrounding bankruptcy and its role in helping individuals or businesses manage overwhelming financial burdens. It involves court proceedings, the evaluation of one’s debts and assets, and typically includes a plan for repayment or asset liquidation. Thus, the correct understanding of bankruptcy goes beyond simple financial concepts like accumulation of wealth, financial planning, or investment strategies, which do not encompass the legal implications and protections involved in the bankruptcy process.