Is bankruptcy right for you?

Hand filling out bankruptcy petition

If your pile of bills has become unbearable, and unpayable, you may be thinking about bankruptcy.

But asking a court to write off all, or even part of, your debt is a huge step that will affect almost every aspect of your life -- from where you live to where you work -- for years to come.

How can you tell if your financial problems are so severe they can't be fixed any other way?

These six questions from bankruptcy attorney Leon Bayer of the law firm Bayer, Wishman & Leotta in Los Angeles are a good place to start.

Question 1. Do you need to borrow money to keep up with your bills?

It doesn't matter whether you're using a credit card or home equity line of credit. Depending on even one is a good way to tell that you're falling further and further into debt each month.

Question 2. Have you borrowed money from a payday lender?

This is really bad. Payday lenders charge ruinous rates and will escalate your money problems like nothing else. Even if you haven't borrowed from a payday lender yet, but have thought of it as an option, consider this answer a "yes."

Question 3. Are you getting phone calls or letters reminding you that you owe money?

When debt collectors start contacting you, that's a sign you're seriously delinquent with at least some bills. If you avoid answering the phone or stuff unopened letters from bill collectors in a drawer, you're in denial. Your creditors are not going to just disappear.

Question 4. Are you incurring late charges on credit cards, auto loans or any other revolving credit accounts?

Late charges add to your debt and act as a red flag to creditors that haven't yet realized that you are in financial trouble. That may prompt them to cut you off from additional loans and, in the case of your credit cards, dramatically raise your interest rates.

Question 5. Are debt problems stressing your marriage or personal relationships?

Most couples argue about money. But if it gets to the point where arguing about money is a daily occurrence, you're in trouble. If you're not arguing about money, are you hiding bills or money problems from your spouse or significant other that would cause an argument? Lying, hiding overdue bills and avoiding conversations about money generally mean that you're in way over your head.

Question 6. Have you tried to borrow money from relatives or friends?

Most of us only turn to relatives or friends for money as a last resort because we don't want to admit that we're at the end of our financial rope. If you're trying to borrow from them to avoid defaulting on a payday loan or make your mortgage payment, you're about to hit rock bottom.

If you've answered "yes" to every question, or maybe five out of six, you're a candidate for bankruptcy.

But there's one more thing you should do before plunging into a costly and difficult legal battle with your creditors.

Get the opinion of a reputable credit counselor.

We recommend a member of the National Foundation for Credit Counseling, the nation's biggest and oldest credit-counseling organization.

Its 120 agencies abide by a set of professional and ethical standards that have served many individuals and families very well over the past 50 years.

Find a credit counselor in your area. The fees will be modest, and their experienced credit counselors, who negotiate debt reduction and repayment plans every day, will know if they can help or if bankruptcy is your only choice.

Gail Cunningham, vice president of business relations for Consumer Credit Counseling Services of Dallas, says bankruptcy should be the last resort because it will hurt your credit score for seven to 10 years after your case is discharged, making it more difficult to buy a car or home, or even to get a job. (An increasing number of employers check applicants' credit reports.)

If you need an attorney and think you might qualify for free legal aid, go to FindLaw at public.findlaw.com to locate help in your area.

If not, you'll want to hire a bankruptcy lawyer, which will cost anywhere from $2,000 to $5,000, depending on the complexity of your case and where you live. Many attorneys will accept a modest down payment and the balance over time.

To find an attorney who knows consumer bankruptcy, go to the American Board of Certification, a nonprofit group that tests and accredits bankruptcy lawyers.

Hiring professional help is expensive. But don't try to file on your own. If you make a mistake, the court will toss your case and you won't be able to refile for six months even if you hire a lawyer.