When our country was founded and our Constitution framed, Bankruptcy became part of Article Two of the Federal Constitution. It is a Constitutional right and that is why Bankruptcy proceedings are in the Federal Courts.
All civilized countries have provisions for bankruptcy.
There are a multitude of reasons why a person has to file bankruptcy. Illness, sudden loss of employment, unfortunate credit planning, failure of a business, or just plain bad luck, to name a few. Title 11 of the United States Code, referred to as the Bankruptcy Code, contains the Chapters that relate to Bankruptcy. Sometimes it is possible to reorganize a person's financial affairs without the need to avail oneself of the benefits of Bankruptcy. Negotiations with creditors without filing for relief is possible under certain circumstances.