When a person or business is so heavily in debt that there is no foreseeable way they can pay back that debt, bankruptcy is one solution. Bankruptcy serves as a way for individuals and companies that cannot meet their financial obligations to be excused from having to pay all or at least some of that debt at the time it is due. Of course, there are certain rules and procedures in place for filing bankruptcy on the federal level. States do not legislate in this area of law.