Bankrupt is a state of being legally declared incapable of paying off creditors. Individuals and businesses can go bankrupt but it must be applied for to the courts. A legal action must take place to be sure the debtors’ creditors get repaid as much as possible for their outstanding balances.
Bankrupt individuals, once legally declared, will have their credit rating affected for approximately seven years after the declaration. After that point, it is possible for the debtor to begin to re-earn credit.
Bankruptcy is most often filed by the debtor but in extreme cases, creditors have filed “involuntary bankruptcy” against the debtor and been successful. This is a lengthy process and the case must be severe, meaning extremely large amounts of monies owed.