Bottom out

I was just watching a deep and meaningful (yeah right) episode of NYPD and one of the characters said that their snitch, bottomed out, which I assume means they backed out, whimped out, whatever. This means that what I think the term 'bottom out' means and what Americans think it means must be different.

So what does 'bottom out' mean to an American and how did it originate?

It means to "hit bottom" or come to a position in life from which the only place to go is up.
The recovery movement talks about "hitting bottom" with the concept that a drug addict/alcoholic has a better chance of letting go of certain behaviors if that person "hits bottom". Losing your family, your job, your house,your business can be considered aspects of "hitting your bottom".