I'm an optimist. Things will improve, new businesses will address needs in the market, millionaires will be born and small business will continue to be the most powerful engine of our economy. You've heard this before--many times. But I want you to have the facts.

In a typical economic environment, most small businesses fail within five years. In today's economic environment, with the disappearance of credit, customer bankruptcies and reduced consumer spending, the odds of failing are even higher. In this column, I typically write about conceiving, launching, growing and managing your startup. However, today it's also relevant to talk about closing it. Many companies--including those with terrific business plans, products and customers--are unable to meet their payables. They're bankrupt.

First, I want to address the stigma of bankruptcy. Given that we spend most of our personal and professional lives trying to look good and glorifying those who succeed against all odds, deciding to abandon the fight and openly acknowledge failure is hard to do.

One positive outcome of today's economic situation is the all-too-public evidence that business and financial failure is something that can happen to anyone, from the savviest investment banker to once-hot companies and major public corporations. Failure is part of business risk. So if you're facing failure, you're in good company. Let go of any shame and get the facts you need to make a good decision.

There are two main categories of bankruptcy: business and personal. For many small-business owners, the line is blurred because it's difficult to separate personal finances from business finances. From a bankruptcy perspective, this can be a positive. First, however, the caveat: I'm not an attorney, and this is a very general description. Second, bankruptcy laws and the income level--"means"--that can impact eligibility for certain forms will vary by geography, so anyone considering bankruptcy should seek the advice of an attorney.

There are three bankruptcy laws I consider most applicable to those who read this column: Chapters 11, 7, and 13.

Chapter 11 is what you read about most often when a corporation seeks bankruptcy protection. Chapter 11 allows a business to place its creditors on hold. That gives the filer an opportunity to reorganize, pay creditors some fraction of what they are owed and catch up. This form is also open to individuals with high debts. Administration and oversight, however, are a significant burden and cost. Statistically, the failure rate of Chapter 11 cases is extremely high, and companies spend a considerable amount on attorneys' fees.

For individuals, including small-business owners, Chapter 7 is an option. This form of bankruptcy means you'll give your non-exempt (clothes and household goods are exempt) assets, including your business, to the bankruptcy trustee. The trustee will then sell any marketable assets and disperse the cash to the creditors in the order of priority provided in the bankruptcy code. The benefit of Chapter 7 is that most of your non-secured debts--such as credit card debt--will be eliminated or wiped clean. This generally doesn't eliminate obligations for debts such as recent income taxes, student loans, child support and similar obligations. Another option is for the trustee to try to sell all of your non-exempt assets. If he can't sell something, such as your business, it reverts back to you.

Chapter 13 is a third option for individuals and small-business owners, with some key differences. First, Chapter 13 filers don't surrender their businesses to the trustees. If you just need time and some accommodation to catch up on your personal debts or to prevent a foreclosure on your home, you can force your non-secured creditors to give you that time by filing Chapter 13 while keeping your business. The Chapter 13 plan may provide for repayment of only a fraction of the debt, depending on income level and the value of your non-exempt assets. The discharge at the completion of the Chapter 13 plan eliminates any unpaid, unsecured debt. This only applies to individual debt, not corporate debt, although some company debts, such as credit cards, may be in the owner's name. To qualify, the filer can't have more than $1,010,650 in secured debt (homes, cars) and more than $336,900 in unsecured debt (credit cards, student loans, etc.)

There are other lingering consequences to consider. For instance, bankruptcy will remain on a filer's credit report for up to 10 years, depending on the form of bankruptcy filed. Also, re-establishing credit after filing can be difficult.

I have repeatedly been amazed and inspired by the strength and stamina of entrepreneurs who overcome daunting challenges. They do so by leveraging information and tools at their disposal. The decision about whether to file bankruptcy shouldn't be viewed as a moral question but as one tool among others to help a business survive or close. "A business failure is not evidence of moral failing," says bankruptcy attorney Cathleen Cooper Moran of the Moran Law Group.