Should I file for bankruptcy?

(FORTUNE Small Business) -- Dear FSB: We are a very small family landscaping business (sub S-corp). Our work season hasn't started and we're already in debt by about $12,000. We're looking to borrow up to $10,000 more to carry us until the season begins. In the event that we can neither pay down the debt nor pay ourselves, should we consider a bankruptcy filing? If so, which option (Chapter 7, 11, or 13) offers us the best out?

- Ron Swall, Lawrence, Kan.

Dear Ron: You should file for bankruptcy only as a last resort. Most creditors would prefer that you work out a structured payment plan, because a bankruptcy filing means they won't get paid much at all, if anything, says Chicago business consultant Ken Gaebler.

Moreover, bankruptcy can be a permanent stain on your record, making it difficult to ever be in business again.

Bankruptcy experts and consumer advocates recommend that you explain your situation to all your creditors and see if they can work with you to help pay down what you owe.

"This is not the time to give up. It's the time to get creative and think outside the box on how to get the money to reduce your debts," Gaebler says. "Maybe a loyal customer is willing to lend you some money or take a partial interest in the business. Maybe you can offer discounts on pre-payments for the upcoming season."

If you do opt for a bankruptcy filing, it's hardly an easy out. Chapter 11 and Chapter 7 are business bankruptcies. Chapter 11 is a complex filing that you should only consider if you're convinced that your business can survive, says bankruptcy lawyer and Southwestern Law School adjunct professor Ed Wolkowitz. Chapter 7 is a liquidation proceeding. It's not a good option if any of your debts are guaranteed personally.

Chapter 13 is a personal bankruptcy declaration.

"You have very little control over what gets liquidated, so it's a dangerous proposition," says Gaebler. "The main reason you formed your landscaping firm as a legal entity was probably to protect your personal assets, so Chapter 13 is not a very good choice for you.".

Check out Consumer Action's online guide to personal bankruptcy filings for more on Chapter 13.