1

Avoid waiting until foreclosure or repossession to file for bankruptcy.

Some people make payments for years, trying to pay off sky-high medical bills and credit card debt. Then, after a judgment is entered -- or their car is repossessed -- or their home foreclosed -- they file for bankruptcy. You can avoid judgments, foreclosure and repossessions and still erase unsecured debt such as medical bills and credit card bills.

2

Avoid thinking bankruptcy is your last resort.

Some people make payments for years, trying to pay off sky-high medical bills and credit card debt. Then, after a judgment is entered -- or their car is repossessed -- or their home foreclosed -- they file for bankruptcy. You can avoid judgments, foreclosure and repossessions and still erase unsecured debt such as medical bills and credit card bills.

3

Avoid using retirement savings.

When thinking about bankruptcy, many people will withdraw money from retirement accounts to pay debts. Using retirement savings to pay off credit cards, medical bills, and other unsecured debt is a bad idea. Retirement savings are protected in a bankruptcy.

4

Avoid paying off relatives and friends before you file.

When thinking about bankruptcy, people will repay over $600 to family, friends or business partners before filing for bankruptcy. These payments are "preferences" and a trustee may seize the money and give it to all of your creditors. Do not pay a relative or friend significant amounts of money (more than about $600) within the year prior to filing for bankruptcy. Under state law trustees can look back even further.

5

Avoid a home equity loan.

You can't borrow your way out of debt. Many people hope to avoid bankruptcy by getting a home equity loan to pay off medical bills, credit card debt, and other obligations. And, not surprisingly, banks and other lenders make home equity loans sound attractive because they want to loan money. Later, people with home equity loans end up losing their home when they can no longer make the payments. If you're late paying medical bills or credit cards, the creditor can harass you, take a judgment, and potentially garnish your wages -- and that's about all. When you're late paying a home equity loan, the bank can foreclose and throw you and your family out of the house. Don't trade unsecured debts for a home equity loan. The odds are good that if you file for bankruptcy, you will get rid of your debts and still be able to keep your home.