Bankruptcy is a way to temporarily suspend (during the course of the proceeding), and later prevent, all debt collection actions for debts you had at the time you filed your bankruptcy petition. Once a person files for bankruptcy, the federal court grants an "automatic stay." This prevents creditors from attempting to collect on any outstanding debts. Creditors may petition the court for relief from the automatic stay. Often, creditors whose loans are secured by property are permitted to take possession of that property.
At the end of the bankruptcy proceedings, a person's debt are discharged. The discharge acts as a forgiveness of personal liability for all debts incurred prior to filing for bankruptcy. In most instances, creditors can't try to collect debts that have been discharged. Once discharge is granted, former creditors also have no claim on future income.
In exchange for this "fresh start," a debtor must turn over all non-exempt property to a court-appointed trustee. The trustee is required to sell the property and distribute the proceeds to the creditors. A debtor can be denied a discharge for certain "bad acts" such as concealing or fraudulently transferring assets prior to filing. Even if a discharge is granted, certain debts can never be discharged. These include: alimony and child support, student loans, taxes, and any debt incurred through the debtor's fraud or theft.