Bankruptcy is something no one plans for.  No one thinks it’s a great idea.  Even though people do everything they can to avoid it, sometimes  good people have to resort to bankruptcy.

The fear, guilt and shame that come with bankruptcy are awful and if at all possible I recommend avoiding bankruptcy.  Sometimes it’s hard when you’re drowning in debt to think of ways out.  You’re emotional and your thoughts are consumed with getting out from under the weight that is holding you down.  Perhaps selling your car, taking an extra job (think pizza delivery), having a garage sale, and cutting extra spending each month will be enough to do the trick.  Most would agree that these sacrifices are better than the alternative.

 There are two main types of consumer bankruptcy:

• Chapter 13 which means the court approves a plan for you to repay your debts over time.
• Chapter 7  which means the court sells your assets in order to pay back as much as possible, with some exemptions that vary state to state, to allow you to keep some personal items and maybe some home equity.

Bankruptcy doesn’t eliminate:

• Child support
• Alimony
• Taxes
• Student loans

Where to go from here:
If you’re serious about getting out of your financial mess start with the basics.  Don’t look at your expenses and try to cut here and there.  Start with a clean slate.  The basics you need to survive, yes survive, are food, shelter, clothing, utilities, and transportation.  First make sure you have food on the table and utilities.  I’m talking rice and beans not take out pizza.  Then make sure your rent or mortgage payment is up to date.  You already have clothes so make due with those for now.  That takes care of your basic needs now on too everything else.

Sell eeevveeerryyyythhhiiinggg.  Sell your old books, your old CDs, old toys, tools, home decor, anything that you no longer need or that you can replace later once you have your finances in order, sell!  As Dave Ramsey says, “Sell so much the kids think they’re next.”  With the money you get pay a little to each creditor you owe to show them that you are trying.  It’s better to pay your rent/mortgage in full each month than to pay off your credit card.  You need a place to sleep.

There is life after bankruptcy so if you have to go through it you will survive but it’s best to avoid it if at all possible.