What does "bankruptcy" refer to in a financial context?

In a financial context, "bankruptcy" refers specifically to a legal process through which individuals or businesses that are unable to pay their outstanding debts can seek relief. This process involves the court determining the best method to resolve the debts, which may include the restructuring of payment plans or the discharge of some or all debts. By filing for bankruptcy, a debtor receives protection from creditors, providing them a chance to reorganize their finances and start anew.

This definition emphasizes the key role of the court in managing the financial obligations of the debtor and highlighting the concept of financial inability to meet debts, which is crucial for understanding how bankruptcy functions as a legal remedy. Other choices do not accurately represent what bankruptcy is or the legal mechanisms involved in the process.