When you think of bankruptcy, you probably think of Chapter 7 bankruptcy. It is sometimes referred to as a “straight bankruptcy” or a liquidation. Chapter 7 bankruptcy allows most debts to be entirely forgiven without entering into a payment plan.
Your non-exempt assets are “liquidated,” or sold off, in order to pay for at least a portion of your debt. After the proceeds are distributed to your creditors, the remainder of your dischargeable debt is forgiven.
Chapter 7 bankruptcy may be appropriate if you have significant debt you can’t currently pay and don’t foresee an ability to pay in the future. It is an extreme measure, but can offer a way out from an otherwise untenable situation.