Bankruptcy should be avoided. It seems very easy to do, but it is an event that changes life and causes a lifelong damage. So again, most bankruptcy cases could and should be avoided.

As mentioned earlier, bankruptcy is listed in the top five most altering negative events people can go through (along with divorce, disability, severe illness, and loss of a loved one). The reason for that is simple: it wounds the psyche and ruins the credit report for your whole life. So whenever the opportunity exists to not file bankruptcy, then don’t do it. With proper help by a financial counselor you can actually clear yourself from bankruptcy.

Here are some warning signs which should point out that someone is on the “right” way to bankruptcy (source: daveramsey.com):

• Not using a budget
• No control over spending
• No emergency fund
• Having a house you can’t afford
• Owning a car you can’t afford
• Using credit cards
• Having student loans

The easiest way to get out of debt and avoid bankruptcy is simply to develop a plan, which should create an overview about the financial assets and expenses you have within a certain amount of time. Also contacting a financial counselor would be very helpful. In the following some beginning steps are listed (source: daveramsey.com):

• Build up a beginner emergency fund of $1,000. Sock this money away as quickly as possible. Emergencies will happen so be prepared.
• Start living on a monthly budget. Make sure you cover the basics first à housing, utilities, food and transportation. Then use what is left over to aggressively pay down debt.
• Attack your debt. Evaluate what you can sell to cut your debt. Consider taking on a part-time job to accelerate your climb out of debt. Sell so much stuff that the kids think they are next.
Add to the emergency fund. Once you are out of "crisis mode" (all debt but the house paid off) focus on getting three to six months of expenses in your emergency fund. When it is fully funded, you can start making your money work for you.