Avoid bankruptcy - some critical tips. 

Bankruptcy happens to many people. Some of these people have indeed abused their buying powers and overspent, lived luxuriously, established extravagant habits and the like. However, there is another category of people who are faced with bankruptcy for circumstances beyond their control such as the death of the breadwinner in the family, bad investments such as stock markets where crashing of market can easily wipe out somebody's lifetime savings, loss in business, loss of job, etc.

Hence, not everyone who is faced with bankruptcy is an irresponsible person. The law acknowledges this fact and offers a mid path that both protects those who find themselves in this situation due to beyond-their-control circumstances, as well as warns those who reached this stage through irresponsible financial behavior.

The good news is that one can avoid bankruptcy in most cases, if you take chare of your life and ensure that your finances stay within a carefully and realistically drawn up budget/ financial plan. The following are some critical tips that could save you from bankruptcy:

1. Budget your expenses - there cannot be anything more important than this aspect in anybody's life. Even the multi-billionaires of the world would have a budget to go by for their home expenses, private expenses, office expenses, etc. However, in order to have this budget work, it has to be realistic. Do not cut all miscellaneous expenses; include the option of an occasional meal at a restaurant, birthday gifts, etc.

2. Home Equity Loan: it would be a great idea if you could apply for a home equity loan when you are swamped with bills. In this way, you get sufficient money to pay off your debts and then may be left with some extra money to re-establish yourself financially.

3. Exclude all frivolities - go through your expense sheet or check out mentally what actually the must-do payments are and what are not. Stick to must-do payments until your financial situation improved. This list should contain all the basic amenities. What you need to exclude are the small daily expenses that snowball into a huge amount at the end of the month. Cut off all the indulgences until you are out of the woods.

4. Prioritise your payments - some payments are very, very urgent while some can wait for a month or two. Sit down, list all your dues, and carefully prioritise these payments according to their emergency line. Pay special attention to dues where default attracts lawful redress. The utility bills should be first, then your most urgent loans.

5. Do away with your credit cards - return all your credit but one (which would be kept for emergency and Internet transactions). Credit cards are one of the most notorious reasons for bankruptcy. People never realise in how trouble they are until their cards max out. Then you are charged a whopping interest rate, and have nowhere to go for cash.

6. Consolidation of bills - there are many agencies, which provide the service of consolidating your bills and managing your finances. Though this would slightly lower your credit rating, it is a good option for those who simply cannot stay away form trouble. These agencies escrow your income and endeavor to make payments on your behalf to all your creditors.