Stressful economic periods lead to stressful family finances, which in turn can lead to bankruptcy filings.

Bankruptcy is not a panacea to lift up all your financial troubles and put a smile on your face, as late-night television commercials would have you believe.

But in case it turns out to be the only answer, you should have a full understanding of available choices and potential repercussions.

Personal bankruptcies in the U.S. declined 8 percent in the first half of this year compared with the year-earlier period, according to the American Bankruptcy Institute.

Chapter 7 bankruptcies fell 9 percent, while Chapter 13 filings were down 3 percent. Sounds good, but it might not be the positive indicator that it appears to be at first blush.

"The decline in personal bankruptcies isn't an indication that the economy is vastly improving, but rather an indication that people can't afford to file," says Doug Erickson, vice president in strategic programs for the nonprofit CredAbility counseling service in Atlanta. "It isn't cheap to file for bankruptcy, with a Chapter 7 bankruptcy costing you anywhere from $1,000 to $2,500 (in court and attorney fees) and payment is due up front."

Chapter 7 is the most prevalent personal bankruptcy, providing liquidation of a debtor's property and distribution by the bankruptcy trustee of proceeds to creditors. There is no repayment plan associated with it.

Chapter 13 bankruptcy, also known as the "wage earner's plan," allows people with regular income to develop a plan to repay all or part of their debts.

"If you don't have a source of income, you will not qualify to file Chapter 13," Erickson says. "If you are unemployed but can make mortgage and car payments, you can file Chapter 7."

While you can keep your house in Chapter 7, unsecured debt such as credit card balances will be discharged, he says. However, debt acquired within 90 days of filing can't be discharged—an assurance that you won't go on a last-minute shopping spree, which was a common occurence under previous bankruptcy laws.

"Bankruptcy often indicates what is happening in your personal life more than what's going on in the overall economy," says Kim McGrigg, manager of community relations for nonprofit Money Management International, in Denver. "When people can't think of anything else, that is when they think of bankruptcy."

The bankruptcy process is typically completed in a month or two, but results linger. A Chapter 7 bankruptcy remains on your credit report for 10 years from the date of filing, while Chapter 13 remains for seven years.

Since many loan applications ask whether you have ever filed for bankruptcy even after those seven or 10 years are up, bankruptcy follows you around. Have a clear, concise explanation for why you filed and how you took steps to recover.

Declaring bankruptcy doesn't kill chances of ever getting a loan again, since creditors mostly watch for a few years of good, timely payments on bills. A solid payment history through a low-limit secured credit card is one of the ways to reestablish credit.

A more significant challenge will be obtaining a comfortable loan. You don't want to be required, based on your past credit history, to pay interest rates so high that it is difficult to stay current with payments.

"Although there are downsides to bankruptcy, keep in mind that it is the right option for some people," adds McGrigg, noting that it makes sense to have an attorney, even though not required, especially if there are complexities. "For some folks, there just isn't going to be a scenario in which they can pay off their debts."

While illness, divorce, and loss of employment are the primary drivers of bankruptcy filings, a lack of personal financial control often plays a hefty role. A persistent problem in weak economic periods when people would rather forget all about finances is putting problems out of sight and out of mind.

"The best way to avoid bankruptcy is to stay on top of your finances," says Gail Cunningham, vice president of the nonprofit National Foundation for Credit Counseling, in Washington, D.C. "Be financially organized by setting up a financial center in your home and commit to visiting it once per week."

Cunningham says that if you've gone on a "mindless spending binge," then following this careful process will bring you back to reality. Nothing wrecks a budget like an unplanned expense.

The most proven way to ward off bankruptcy is to save money. You should sock away any "found money" so that it can sustain you if medical or other unexpected financial problems arise.

"In my 25 years in credit counseling, I've never once met someone who said they'd saved too much," Cunningham says. "The millions who have lost their jobs are ever so thankful for any savings they had built up."

If your finances seem to be turning bad, don't delay reaching out for help in the form of professional assistance, she says. If you wait too long, your financial hole just gets deeper and more difficult to resolve.

Sitting down with a trained, certified credit counselor at a legitimate nonprofit agency will either assist you in finding a way out or confirm your suspicions that bankruptcy is really your only option. "Either way, you'll feel better as a result," Cunningham says.