You need a clear, legitimate excuse for why you're behind [the bankruptcy], such as a layoff, divorce, or medical emergency. Be prepared to back up the circumstances with supporting documents. Anything you have to substantiate your story - including proof that you have, for instance, been actively looking for a new job - will help.

If you are, consolidating at a lower interest rate can help you pay off your debt faster. But if there's even a small chance that you'll spiral back into debt, it's not for you.

If you're filing bankruptcy, you will likely want to hire an attorney. But for debt settlement, a company is sufficient, or as I said, you can often do the legwork on your own.

The debt settlement company will direct you to stop paying your creditor and instead send the money directly to them each month. The company's goal is to demonstrate to your creditor that you don't have the money to pay up - that's your leverage. After a few months, the company will typically go to the creditor and say, "I'm holding X dollars on behalf of your customer. He doesn't have the money to pay you, so you should take this amount as a settlement or you'll end up with nothing." If the creditor wants to get paid badly enough, it will take the money.

You'll get much better results by being upfront, answering creditors calls, and responding to their letters. Delaying the inevitable only digs a deeper hole.

If you'd asked me a few years ago about debt settlement companies, I probably would have told you to avoid them.

If you default on an unsecured debt, you won't lose anything (except points on your credit score).