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A legal process in court that lets you basically say "whoops, sorry—I can't repay what I owe."
When you declare bankruptcy, you're basically getting an excuse not to pay off a bunch of your debts, including credit card debts. Once you go through the process, credit card companies, debt collectors, and other companies can't come up to you to get their money back. You may be asked to liquidate some of the things you have in order to pay back some of what you owe. And some stuff—such as custody payments—cannot be forgiven in a bankruptcy.
It's not a get out of jail free card, either. Bankruptcy basically ruins your credit rating for years and makes it hard for you to get a home loan, credit card, and other types of financing. So why would anyone do it? If you're really over your head in debt, bankruptcy can help you get a fresh start and can help protect you so you don't get your home taken away.
It's pretty much a last resort if you're in financial hot water.