How to avoid bankruptcy?
Filing for bankruptcy should be the final resort, not the first step

If you think that filing for bankruptcy will solve all your debt problems, you are being misled by someone.  Bankruptcy filing can come to haunt you for years and that is why this decision should be taken after careful analysis and deliberation.  Plus, you should do your research to explore other alternatives like debt consolidation, loan deferment, grace periods, etc. to see if you can avoid bankruptcy.  (Related article:  Oprah highlights America's debt diet crisis)

• Your credit history is ruined for up to 10 years.  That means that you may not be able to apply for credit, rent apartments, secure jobs, order utilities, etc.  (Related:  Should I refinance?)
• Bankruptcy does not mean that your debt will be wiped out and you will become debt-free and start fresh.  Unfortunately that is the impression most people have and it is not correct.  You may be able to lower or even eliminate some bills, it comes at a heavy cost.  (Related:  How to avoid foreclosure)
• For years after you file for bankruptcy, banks and other financial institutions will exploit you by charging a higher rate of interest.  It will take you years of good financial management to become 'clean' again.  (Related:  Personal finance for empty nesters)
• There is a social stigma attached to bankrupt folks.  Even your close friends and family members will avoid you if you file for bankruptcy.  I have known people whose relationship ended within days of filing for bankruptcy.  (Related:  How to deal with rising prices?)

So how can you avoid filing for bankruptcy?

1. Do your research by exploring what other alternatives are available to you.  You must speak to your creditors to see if you can work out a different payment plan while you solve your financial problems.  For instance, if you lose your job and are unable to make some payments, and if you have a good credit history, most financial institution will work out an arrangement under which you can avoid making full payments till you secure a job (generally you will have a finite time for this).
2. Explore options for debt consolidation.  This is one of the easiest solutions to avoid bankruptcy.  (Related:  How to survive falling property prices)
3. Change your financial habits forever.  As I always say, spend less than you earn.  (Related article:  Financial planning for retirement)
4. You will need to make lifestyle changes (How to stop overspending) as well.  For instance, you may have 200 channels of cable television but might only watch it a couple of hours a week.  Believe me, there are a lot of good programs on regular channels that you can watch and entertain yourself.  Similarly, stop buying coffee in the morning (buy your own coffee and brew some fresh coffee each morning at home), limit how many times you go out to eat, bring your own lunch box to work, avoid unnecessary trips in the car, don't talk too long on the phone, and avoid any waste that you see in your life.  (Related article:  How to prevent identity theft)
5. Save all the time.  The more you save, the better off you will be.
6. Buy insurance, particularly health insurance.

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