No one wants to think about bankruptcy as his or her only option, but if it’s even on the table you owe it to yourself to take an honest and pragmatic look at your situation.

The worst thing you can do is put off a bankruptcy that, in the end, was inevitable. “As soon as someone realizes they can’t pay their debts, they need to act,” says Sarah Litchney, CEO of the Litchney Law Firm, which specializes in bankruptcy filings. “The clients with the best outcomes are those who act while they’re still current on their payments, but realize they can’t stay current much longer.”

Acting quickly can also save some of your assets (including your house depending on how you file) and avoid lawsuits and liens that could garnish future wages for years. Importantly, the alternative – paying off debt with your 401K or other retirement savings, and selling anything that’s not nailed down – only serves to needlessly deprive you of those assets.  

Certainly there’s something of a stigma associated with bankruptcy, which is why those in the industry prefer to call it a “fresh start.” It’s a way to put the bad behind you and get out from the stress of mounting bills. “It’s not ultimate ruin by any means,” Litchney says. There are downsides of course, among them a public record on your credit report for seven years.

Stigma or not, however, bankruptcy is getting more popular. In northern California alone there were more than 54,000 filings in 2010, up from 9,000 in 2006, an increase of 500 percent. The majority are the more basic Chapter 7 filings. A Chapter 7 gets rid of debts for things like credit cards, medical bills and delinquency notices for foreclosed homes. It will not, however, eliminate certain loans, taxes, liens or lawsuit judgments.

That said, not everyone can qualify for a Chapter 7. “That’s generally the option for people who don’t have a lot of equity and have an income below a certain threshold,” Litchney says. “If you can’t qualify for a 7, the next option is probably a Chapter 13.” Chapter 13 filings are for people with “decent” salaries but still can’t pay their debts. The good news with a 13 is that it can help save your home (Chapter 7 won’t) because it establishes an amount that will be paid to creditors over the next three to five years.

Costs for filing bankruptcy can range from $1,000, for a very basic Chapter 7, to $3,500 for a more complex Chapter 13. Those costs must be paid up front, for understandable reasons, so acting fast is doubly important. Most creditors wait six to nine months before taking action on unpaid bills, which can give you the time you need to pull those funds together. “Above all else, people should not feel embarrassed about considering bankruptcy,” Litchney says. “Talking to an expert doesn’t mean you have to file; it helps you understand your options so you can ultimately do what’s best for yourself and your family.”

For more information on consumer bankruptcy, visit uscourts.gov/federalcourts/bankruptcy.aspx.