1. The inability of a debtor to pay one’s financial debts when due and where relief has been sought and has been granted through a special court action that makes it possible to resolve or eliminatethe debtor’s debts.2. A proceeding in U.S. District Court wherein debtors who can not meet the claims of their creditors may be adjudged bankrupt by the court. See Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.Bankruptcy is the last resort to for anyone and before declaring bankruptcy one should seek to modify their loans with a real estate attorney first.