If you want to prevent filing personal bankruptcy, you have to have fair amount of knowledge on this aspect. Bankruptcy is a federal court process that helps individuals and businesses repay their debts under the protection of the bankruptcy court or wipe them out altogether. When you file for bankruptcy, an automatic stay goes into effect that prohibits your creditors from taking action to collect the debt without the approval of the court. There are two basic types of bankruptcies: liquidation or reorganization. The liquidation bankruptcy refers to that chapter of the bankruptcy law under which an individual or company allows his assets to be sold off or liquidated to pay creditors. Reorganization is most commonly known as Chapter 13 Bankruptcy.

In a liquidation bankruptcy, you turn your personal property although with a few exceptions over to the court, which sells it and uses the proceeds to pay your debts or a portion of your debts. Creditors can no longer come after you for payment, but the bankruptcy stays on your credit history for 10 years and you may be denied credit during that period. If you are behind in your mortgage payments, you could lose your house in a liquidation bankruptcy. If you made up your mind to prevent filing personal bankruptcy, you have to be aware of serious consequences and should not be entered into lightly. Having your debts erased doesn't miraculously solve your long-term financial problems if you have irresponsible spending habits.

Simply put, you can prevent filing personal bankruptcy by practicing good money management. Here are some valuable tips: try to avoid impulse spending, don't use a credit card unless you have the cash to pay it off, tear up credit card offers you receive in the mail, stick to a realistic budget, don't buy more house than you can comfortably afford, make sure you're adequately covered by insurance i.e. medical, homeowners, auto insurance etc., don't make speculative or high-risk investments and don't incur joint debt with others who have questionable financial habits. Still, if you do find yourself behind on your bills, call your creditors before you get in too deep.

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