When you can't possibly pay what you owe and informal arrangements with creditors have failed, it might be time to think about declaring bankruptcy.

Remember, bankruptcy is a last-ditch solution, and it's not a do-it-yourself proposition; you'll want to hire an attorney with expertise in bankruptcy to help you make important decisions that will affect the outcome.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes declaring bankruptcy more difficult and requires increased paperwork, more stringent limitations, and financial counseling from an approved nonprofit credit counseling service.

What kind for you? Individuals in tough financial straits typically can declare one of three types of bankruptcy: Chapter 7, Chapter 11, or Chapter 13.

In Chapter 7, known as straight bankruptcy, you give up your property to the court, which will divide it among your creditors, and ask the court to erase your debts. (The court can't repossess certain exempt property, such as a certain amount of your equity in a residence or a motor vehicle.)

To qualify for Chapter 7 bankruptcy, you must pass a "means test" involving an analysis of your income and expenses. If the test results show that your discretionary income is below $100 a month, you can file for Chapter 7. If discretionary income is over $100, you may have to file Chapter 13.

A provision of the new law bars filers who owe more than about $1.2 million from filing under Chapter 13, but allows them into Chapter 11, which is usually meant for businesses. Because Chapter 11 is designed to keep a business going, it allows the debtor to retain income earned after the bankruptcy filing while using only assets he had at the time of filing to pay past debts.

If you find yourself considering filing for bankruptcy, think again. You shouldn't take this step before you have exhausted the options outlined above. A bankruptcy stays in your credit file for seven to ten years. You may be able to qualify for new credit during that time, but not on terms you'll like.