What term refers to the declaration made by an individual or organization unable to pay debts?

The term that refers to the declaration made by an individual or organization unable to pay debts is "bankruptcy." When a person or business files for bankruptcy, they are legally acknowledging their inability to meet financial obligations. This legal status provides them with protection from creditors and allows for the restructuring of debts or the liquidation of assets in accordance with the law.

Bankruptcy is often seen as a necessary step for individuals or companies facing overwhelming debt, as it provides a fresh start and the opportunity to rebuild financially. It can involve various processes under different laws, such as Chapter 7 or Chapter 13 in the United States, each addressing different methods of managing debt.

In contrast, other terms relate to specific financial or legal processes, but do not capture the essence of an inability to pay debts in the same way bankruptcy does. For instance, foreclosure refers specifically to the process by which a lender takes control of a property when the borrower fails to make mortgage payments. Liquidation involves selling off a company’s assets to pay creditors but does not inherently denote an individual's or organization’s legal status concerning debts. Reorganization generally refers to restructuring a company's debt and operations but does not imply an inability to pay debts in an initial sense.