What is the term for the federal court procedure that helps consumers get rid of their debt?

The term for the federal court procedure that helps consumers eliminate their debt is bankruptcy. This legal process provides individuals facing overwhelming debt with a way to either discharge their debts entirely or reorganize their payment plans under the protection of the court. By filing for bankruptcy, consumers can stop collection actions and work towards a fresh financial start.

In particular, personal bankruptcy, often referred to as Chapter 7 or Chapter 13 bankruptcy, allows individuals to seek either the liquidation of non-exempt assets to pay creditors or to reorganize their debts into manageable payment plans, respectively. This process is designed to offer relief to those who are unable to meet their financial obligations, thus enabling them to regain control of their financial situation.

Other options like liquidation refer more specifically to the selling of assets to pay debts, while reorganization typically pertains to businesses restructuring their debts rather than individual consumer debt relief. Forbearance is a temporary postponement of debt payments and does not directly address the elimination of debt in the way bankruptcy does.