Many people listen to financial gurus who recommend looking at bankruptcy only as a last resort. The problem with this is that many people do everything they can to avoid bankruptcy (including liquidating valuable assets that would otherwise be protected), only to end up bankrupt anyway.

Take for instance a friend of mine named John. John was told by his family and friends that bankruptcy was the worst option possible, and that filing chapter 7 would scar his reputation and credit report for years to come. John knew that bankruptcy shouldn’t be taken lightly, and he was very prudent to study his options carefully before making a decision.

However, even though he felt that he needed to file Chapter 7, he was too ashamed and too timid to go against his family’s advice and decided to go with some other options instead. He obtained a home equity loan to pay off some of his credit card bills. When that wasn’t enough to cover all of his debt obligations, he decided to liquidate his retirement funds.

The sad news is that this was not enough to pay all of John’s financial obligations including credit card bills, medical bills, and other debts. So when all was said and done, he was still bankrupt and now had no retirement funds. He had also lost a significant portion of equity in his house, and his house was on the line if he failed to pay back the bank loan.