To many individuals and small business owners think you have to be bankrupt to file bankruptcy. They deplete their retirement savings and borrow against their home to prevent a bankruptcy filing. The banks and credit card companies want you to believe that this is the right and honorable thing to do.
It may well be the worst thing you can do, especially if you are in default on any debts. In today's credit climate, the slightest default can destroy your credit. Lenders will not lend to you or will reduce your credit limits for fear that you will file bankruptcy. Under those circumstances, bankruptcy can actually help your credit score repair chances because you have to wait 8 years to file for another discharge in bankruptcy and this makes you a better credit risk.
Another fallacy is the 70% discount for a full payoff. Say you owe $100,000 on a credit card. They offer to accept $30,000 for a full settlement. You get all your available cash and pay them. Then they send you a 1099 for $70,000 and you owe the IRS $24,000 in taxes on this debt forgiveness. You now have a much bigger problem because the IRS becomes a non-dischargable priority debt and the IRS can lien assets and bank accounts.
People need to realize that you can have good cash flow, significant retirement assets and equity in your home and still file for protection under the bankruptcy code to protect these assets if buried in onerous credit card debt or other liabilities that threaten to consume your "protectable" assets.
Seek the counseling of a bankruptcy attorney if you find yourself in such a situation and take their advice. In too many cases, I find that the biggest mistake is NOT filing bankruptcy by believing what the banks and credit card companies are telling you.