Which option involves a legal proceeding to eliminate or reduce debt?

Bankruptcy is a legal proceeding designed to provide individuals or businesses facing insurmountable debt with a fresh start by either eliminating or restructuring their debts. When someone files for bankruptcy, they are subject to federal laws that guide the process, helping them discharge certain debts entirely or arrange a payment plan based on their financial situation. This legal framework creates protections for both the debtor and creditors and allows for a systematic way to handle insolvency.

Consolidation loans, credit counseling, and debt management plans focus on reorganizing debt or creating structured repayment plans rather than initiating formal legal proceedings. These options assist debtors in managing their finances without the abrupt consequences or long-lasting impact that bankruptcy entails. In contrast, bankruptcy provides a definitive legal status regarding debt relief, making it the most appropriate answer to the question.