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When the amount of your high-interest consumer debt relative to your annual income exceeds 25 percent, filing bankruptcy may be your best option. Like any tool, it has its pros and cons.

Bankruptcy’s potential advantages include the following:

 Certain debts can be completely eliminated or discharged. Debts that typically can be discharged include credit card, medical, auto, utilities, and rent. Eliminating your debt also allows you to start working toward your financial goals, such as saving to purchase a home or toward retirement. Depending on the amount of outstanding debt you have relative to your income, you may need a decade or more to pay it all off.Debts that may not be canceled through bankruptcy generally include child support, alimony, student loans, taxes, and court-ordered damages (for example, drunk-driving settlements).

 Certain assets are protected by bankruptcy. In every state, you can retain certain property and assets when you file for bankruptcy. Most states allow you to protect a certain amount of home equity; some states allow you to keep all of your home equity regardless of its value. Additionally, you’re allowed to retain some other types and amounts of personal property and assets. For example, most states allow you to retain household furnishings, clothing, pensions, and money in retirement accounts. So don’t empty your retirement accounts or sell off personal possessions to pay debts unless you’re absolutely sure that you won’t be filing bankruptcy.

Filing bankruptcy, needless to say, has it downsides, including the following:

 It appears on your credit report for up to ten years. As a result, you’ll have difficulty obtaining credit, especially in the years immediately following your filing. (You may be able to obtain a secured credit card, which requires you to deposit money in a bank account equal to the credit limit on your credit card.) However, if you already have problems on your credit report (because of late payments or a failure to pay previous debts), damage has already been done. And without savings, you’re probably not going to be making major purchases (such as a home) in the next several years anyway.

 It incurs significant court filing and legal fees. These can easily exceed $1,000, especially in higher cost-of-living areas.

 It can cause emotional stress. Admitting that your personal income can’t keep pace with your debt obligations is a painful thing to do. Although filing bankruptcy clears the decks of debt and gives you a fresh financial start, feeling a profound sense of failure (and sometimes shame) is common.

 It becomes part of the public record. Another part of the emotional side of filing bankruptcy is that you must open your personal financial affairs to court scrutiny and court control during the several months it takes to administer a bankruptcy. A court-appointed bankruptcy trustee oversees your case and tries to recover as much of your property as possible to satisfy the creditors — those to whom you owe money.