Bankruptcy is an enormous financial decision, and before you take that leap you need to examine your finances to try and cut as many expenses from your budget as possible. You may discover that your debt is more manageable and that bankruptcy may not be necessary.

Here are several types of expenses you need to examine thoroughly when bringing your budget down to size:

Gifts

Do you like to give expensive gifts that you can’t afford in order to impress your friends? This is a practice you need to stop if you want to get handle on your debt.

New car payments

If your situation is bad enough, you may be better off selling your new car to get out from underneath the financial burden and simply replacing it with an older but reliable car.

Impulse purchases

This is related to doodads, but we would encourage you to look around the house and count up the number of things that you have purchased over the years. You’ll be amazed at how many things were not needed and may have not even been used very much.

Credit card purchases

This should go without saying. If you want to stop the financial bleeding, you have to stop spending money that you can’t afford to spend. You certainly have to stop charging things on credit cards. If you already owe a substantial amount and are barely able to make the minimum payments, then you may need to consider professional help like bankruptcy. You should at least discuss this with a professional like a bankruptcy attorney because you could easily spend years simply paying the interest on your current credit card bills.

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When it comes to the bankruptcy process, too many consumers end up making mistakes. Some try to cheat the system and play outside the rules, while others simply do not listen to their lawyer’ s advice or pay attention to the rules when initiating the process. Still others make a mistake of putting their assets on the line to cover unsecured debts, only to end up in bankruptcy anyway down the road.

Here are three common bankruptcy mistakes you need to avoid:

1. Trying to hide your assets from the judge or trustee.

When you go through Chapter 7, the trustee will try to get whatever he can on behalf of the creditors. Some assets are protected by state or federal law, including your primary residence and a modest vehicle. The details vary from state to state, and some states have limits depending on how much you owe and how much your house is worth.

Other assets, however, are not exempt. You need to make sure to list all of your assets accurately on your bankruptcy forms. You don’t want to get a federal judge angry because you lied about what you owned just to avoid paying off some of your debt.

2. Leaving off certain creditors from the list

If you want to get all of your debts discharged in Chapter 7 bankruptcy (or as many of them as are allowed under the statute), then you need to make sure and properly list every creditor with the amount that you owe and the correct address. If you leave off any creditors, you can apply for an amendment to your case, but you don’t want to take any chances. After all, the purpose of this entire process is to eliminate your debt, so you need to make sure and take advantage of it fully.

3. Using a home equity loan to avoid bankruptcy

This is a common mistake that occurs before bankruptcy and not during the legal proceedings. Bill collectors may put pressure on you and make you feel like you have to pay your bills no matter what. Meanwhile, credit counselors who work for the credit industry may convince you that home equity loans are superior to bankruptcy.

You need to be very cautious when considering this route. Keep in mind that your unsecured debt is unsecured — it does not have any collateral backing it up. Why would you put your house on the line in order to pay these credit cards? Bankruptcy could have provided you with homestead protection while eliminating your debt.

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“Foreclosure” is the process by which a lien holder (bank or mortgage lender) takes back ownership of property because the homeowner fell behind on their mortgage loan payments. The homeowner defaulted on his/her agreement with the lien holder. A homeowner is typically foreclosed on after they are 3 or more payments behind. The amount of time it actually takes for your lender to auction off your property varies greatly. I have heard of people who have stayed in their for 4+ years without making a mortgage payment and others who were forced out of their homes after just a few months. While there are tricks to delay foreclosure, it seems to be luck of the draw for the amount of time it takes your lender to pursue foreclosure.

The lien holder owns the property and tries to re-sell the property for as much as they can. Typically, the amount is far under what the previous home owner paid. Foreclosure laws differ between states, but can be broken down into one of two categories: Judicial States and Non-Judicial States. You need to understand that a bank is a business and they make their decisions based upon profit and loss.

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