Final answer:
Chapter 7 bankruptcy clears most unsecured debts providing a 'fresh start' for individuals overwhelmed by financial distress. It involves liquidation of non-exempt assets by a trustee to repay creditors, but often allows individuals to retain essential property.
Step-by-step explanation:
The type of bankruptcy that clears all debt and provides individuals with a "fresh start" is known as Chapter 7 bankruptcy. This legal process discharges most unsecured debts, allowing the person to start anew financially.
In a Chapter 7 bankruptcy, certain assets may be liquidated by a trustee in order to pay creditors a portion of what is owed. However, many types of essential property are exempt from liquidation under federal or state laws, and the individual often gets to keep them. This form of bankruptcy is designed to help individuals overwhelmed with debt to recover from financial distress by relieving them from the obligations of most of their debts.
The concept of debt relief is not new; ancient practices, like the Law of Jubilee from ancient Israel, periodically cancelled all debts, allowing debtors a chance to begin again economically.