Legal Definition of Bankruptcy: The state of being unable to pay one’s debts. Such person or company is subject to being proceeded against by his creditors, according to prevailing bankruptcy laws | Discover how bankruptcy can offer a fresh start for both individuals and businesses with our comprehensive guide for business owners. Learn about the legal definition of bankruptcy, real-world examples, and the importance of bankruptcy for both debtors and creditors. Take control of your financial situation – read our guide today