Put simply, bankrupcy is the point at which a person's debts and obligations outweigh their total assets, and they have no ability to pay off the debt.
In such a situation, one must enter bankruptcy proceedings, which will result in all their assets being frozen, liquidated, and fairly distributed amongst creditors.
It is important to remember, however, that opting for bankruptcy is a very major decision, and one that should not be taken lightly. Declaring bankruptcy can severely damage your credit rating, and make it significantly harder to fix bad credit in the future.
Before making the decision to declare bankruptcy, it may be a good idea to consult a licensed credit counciling agency.