Which term describes the legal process to get out of debt when repayment is not possible?

• A. Bankruptcy
• B. Default
• C. Delinquent
• D. Deferrment

Answer: (A)

When you can’t repay your debts, bankruptcy is the legal process that can discharge or reorganize what you owe so you can start fresh. In the U.S., it’s handled in federal court and often involves different paths. One path can wipe out many unsecured debts, giving you a clean slate, while another path reorganizes debts into a plan you can afford over several years. It’s important to know that not every obligation is erased—some debts, like certain student loans, taxes, or child support, typically aren’t dischargeable. Filing for bankruptcy also affects your credit and can stay on your report for several years.

Other terms describe situations short of a legal discharge. Default means you’ve failed to make a payment when it’s due, which can trigger penalties and creditor action but doesn’t in itself remove debt. Delinquent means a payment is late, not yet due or overdue. Deferral is postponing payments under an agreement, which delays but doesn’t eliminate the debt.