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If you are considering filing for bankruptcy, you know that it feels like the hardest decision you’ve probably ever made. There are many questions - whether it will really help you get a fresh financial start, what the credit results are after bankruptcy, how bad it will be for your financial future, whether it’s really the right thing to do now.

Finding out more about bankruptcy is the only way to determine for yourself whether it’s right for you. Each individual has a different financial picture, and a different set of needs, which will be considerations you need to face when trying to decide about filing for bankruptcy. Some of the questions you’ll need to answer are, what type of bankruptcy you need to file, what credit problems you are hoping to resolve, what assets you have that you want to save, and what bankruptcy alternatives you have that could help you more than filing. Let’s look at some of these one by one.

There are two basic types of consumer bankruptcy, Chapter 7 and Chapter 13. (There are six types altogether, but we’re focusing on the major personal types.) Chapter 7 bankruptcy allows you to discharge, or eliminate, most of your consumer debt. You may have to sell assets, like cars or homes, to pay off secured lenders. But you can possibly walk away in a few months with little or no debt to pay. A Chapter 13 bankruptcy is for debtors who have regular income and can pay some of their debt. You set up a repayment plan approved by the bankruptcy court, and in three to five years you are discharged. However, many of your debts can remain, but you may be able to save some of your assets.

The new bankruptcy laws after 2005 require that you complete a “means test” which determines whether you have an ability to pay your debts at least in part. If so, you will have to file Chapter 13 bankruptcy, not Chapter 7. This determination is one you can estimate on your own, without the need of a lawyer.

You will also have to complete credit counseling within 6 months of filing personal bankruptcy. It might be an option for you to try counseling while you are trying to decide whether to file or not. Sometimes you can find ways to work out your debt problem without having to file for bankruptcy.

If you have a lot of unsecured credit card debt, totalling more than you earn in one year, you may be a candidate. It’s better to avoid bankruptcy and try to work out deals with your creditors, but that’s not always possible. If much of your debt it secured, for example car loans and a home mortgage, you might consider filing under Chapter 13 to hold onto those assets under a repayment plan if possible. If much of your debt is student loans or support payments, however, these cannot be discharged in bankruptcy, so filing would not help you very much. Talk to a professional to sort out what type of credit problems you can deal with most effectively in bankruptcy.

The main bankruptcy alternative you have is not to file at all! Instead, you can try to work out payment plans with your lenders, or sell assets on your own to pay back debts. Another option is to just let your lender repossess for a car loan, or foreclose for a home loan. Yes, these will damage your credit, but some argue that this is not as bad as a bankruptcy filing would be on your credit. which is harder to recover from afterward. If creditors refuse to work with you, and the calls are just too much, then filing might be the only way to go. Once you file with the court, creditors are prohibited from contacting you.

The best steps you can take now are to read more about bankruptcy, learn all you can, and set up a meeting with a credit counselor approved by your local bankruptcy court. You can also find lawyers who will talk to you about consumer bankruptcy in an initial meeting for free or for a low cost. Find out all you can before taking the major step of filing personal bankruptcy.

For any individual considering personal bankruptcy, a key concern is of course what is the long term impact on your financial life of a bankruptcy. One of the major issues some people are worried about is foreclosure on a home, and specifically which will be worse for them and their credit, bankruptcy compared to foreclosure. But each of these steps will impact your credit score differently, and are two different processes, so it’s not easy to compare apples to apples. Here is how you might approach making a decision.

To start with, home foreclosure is based on your mortgage, which is basically just like any other secured loan, similar to a car loan. Should you fail to pay your loan, the lender is still protected because the loan is secured by your asset, and the lender can sell the home to pay for the debt. This repossession is called a foreclosure. Just like repossession of any other asset, like a car, a foreclosure is a serious mark on your credit report and lower your score.

Bankruptcy is altogether different from foreclosure, since in bankruptcy, you can choose to eliminate multiple debts or in the alternative set up a debt repayment schedule. The credit scoring companies will never tell which is worse, bankruptcy or foreclosure, but it’s likely that by the time you are ready to file bankruptcy, you are already in bad financial shape and so is your credit. A bankruptcy therefore may not lower your credit score too much more.

Yet here are the big issues to consider before making a decision. If you still haven’t been foreclosed on by your lender, and you decide to file bankruptcy, remember that you can still lose your house to a home foreclosure because the mortgage lender can ask the bankruptcy court to allow a sale in order to pay your debt. A sale would more likely occur in a Chapter 7 bankruptcy, where most of your debts are discharged, while in a Chapter 13 filing you set up a payment plan that might allow you the chance to keep your home by making payments. Using a Chapter 13 bankruptcy could thus help you avoid home foreclosure.

As for your credit score, a bankruptcy may not lower your credit score number too much more, however your bankruptcy filing stays on your credit report for ten years. So in five years you might have a better credit score but lenders could still see a bankruptcy from five years ago, and turn you down on that basis.

A home foreclosure on the other hand is like any other repossession or single bad debt. It stays on your credit report for seven years, but once you restore some good credit after a few years you could once again qualify for credit. It’s important to recognize then that your credit score is not the only thing to consider between bankruptcy or foreclosure.

Before you choose bankruptcy or foreclosure, you should find a competent bankruptcy attorney and a non-profit credit counseling agency to meet with. These companies can help determine exactly how your income, expenses and debt will be impacted by either foreclosure or bankruptcy. Some people might want to stay in their home no matter what, while others might consider it important to protect their credit score. By talking with a professional can you choose the right choice for you.