Surviving Bankruptcy: Ten Things You Should Know

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Everybody runs into trouble at one time or another. If you are up against the wall financially, you’ll want to know some information about the bankruptcy option.

1. The new bankruptcy law isn’t as bad as you might have heard. Most people can still file for Chapter 7, keep all of their property, and have much of their debt wiped out.

2. Don’t feel guilty. Bankruptcy exists because the legal system recognizes that debts can get the better of even the most conscientious among us. Bankruptcy is your chance for a fresh start. Take advantage of it, if you need to.

3. Think through your options. The best solution to your debt problems - liquidating your debt through Chapter 7 bankruptcy, repaying some of it through Chapter 13 bankruptcy, or taking steps outside the bankruptcy system - depends on your personal situation, including what you earn, what you own, and what you owe.

4. Keep your phone number. Laws protect you from being hounded by creditors, even if you don’t file for bankruptcy.

5. Sharpen your pencil. When you file for bankruptcy, you will have to complete lots of paperwork. It’s important to be thorough and accurate—if you aren’t, your case could be thrown out.

6. Don’t file an emergency petition. Although you have the option of filing some of your paperwork right away and the rest later, most people who go this route end up in trouble because they blow the deadline for turning in the rest of their forms.

7. Think twice before reaffirming credit card debts. Most credit card debt is erased in bankruptcy, so it rarely makes sense to reaffirm (agree to continue owing) that debt, no matter what the credit card company tells you.

8. Avoid additional temptation. Believe it or not, going bankrupt will not stop the endless stream of credit card offers in your mailbox—but you’ll find that they come with much higher interest rates.

9. Make a budget. Yes, it’s boring, but tracking your expenses and creating a budget is the best way to figure out how to live within your means. Try carrying around a notebook for a month to record all of your expenses.

10. Know your rights. Some creditors will keep trying to collect a debt—by calling, garnishing your wages, or even suing you—after it was wiped out in bankruptcy. This is illegal, and you can put a stop to it.

The article was excerpted from Nolo's Little Legal Companion. You can get a free copy by signing up for one of Nolo's Legal Newsletters.

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