An action filed in a federal bankruptcy court that allows a creditor to reorganize or discharge credit obligations due to insolvency. A property owner may halt foreclosure action by filing bankruptcy. Bankruptcies remain on a credit record for seven years and can severely limit a person's ability to borrow.
* Chapter 7 - "Debtor Wipeout" The court oversees the liquidation of the debtors' non-exempt assets, distributing the cash proceeds proportionally amongst their creditors.
* Chapter 11 - This is a business reorganization proceeding.
* Chapter 13 - "Debtor Workout" This is the almost-automatic choice of most trustors seeking to use a bankruptcy filing to delay the in- evitable trustee's sale as long as they can. The purpose of this proceeding is to give a "wage earner" time for rehabilitation . . . a temporary respite free from the collection efforts of creditors.

This definition is in context to Foreclosure. See more contextual defintions for Bankruptcy.