Yes, there's no getting around it: bankruptcy is the absolute worst single action you can take for your credit score. A bankruptcy is a sign you had a complete financial meltdown, and that you defaulted on several financial obligations. Understandably, FICO scoring weighs a bankruptcy rather heavily as an indicator of future risk.

But even bankruptcies can be recovered from. The recovery process takes a little longer, but the key elements work the same. Bankruptcy is just another Red on your credit report, and we know what happens to Reds as time goes on: they wither away. The key to recovering from bankruptcy is the same as recovering from other credit mishaps: get credit accounts that can report as in good standing.

The wrinkle here is that, because you are considered a high-risk borrower, you will likely have to pay high fees for a credit card during your first couple years after bankruptcy. Setting realistic expectations in those first couple years is important. Galling as it may be at the time to have to pay monthly fees on a crappy little credit card, you'll thank yourself later. Over time, the effects of your bankruptcy will diminish, and the positive effect of your new credit accounts will increase, enabling you to get credit on more reasonable terms.

Is bankruptcy right for you? Only a financial advisor and attorney can make that determination. But if you are experiencing severe financial difficulties, don't try and hide from it. The faster you act--whether to file bankruptcy, go into debt management, or negotiate out better terms with your creditors--the more options you have, and the less long-term damage will be done to your credit.