• Avoid bankruptcy if you can.  A BK will stay on your credit reports for seven to 10 years, and any decent person hates going back on his or her word.  Still, ask yourself if you’re trying to avoid bankruptcy for purely egocentric/ethical reasons.   

From MSN Money’s Liz Pulliam Weston:

If, despite your best efforts, it would take more than five years to pay off your credit cards and medical bills, or you would need to use assets that would otherwise be protected in bankruptcy — like retirement accounts and home equity — then you should at least consult with a bankruptcy attorney about your options.

I wouldn’t recommend bankruptcy any more than I would recommend amputating part of a leg.  But if you have late stage bone cancer and you’ve exhausted every other possible treatment option, you do what you have to do.

• Don’t max out your credit cards.  Until I had the fortunate moment of clarity that led me find a BK attorney, I thought I’d wait a few months and, if I maxed out, look into bankruptcy then.  This is considered credit card fraud and your creditors can challenge your bankruptcy for it.

• Your sense of honor may tempt you to pay off a low-balance card or two before you file.  Don’t.  When your debts are discharged, you will lose all of your credit cards regardless of your account balances.  Put the money towards hiring a good attorney.

• If you have a credit card or credit line with your current bank, open checking and savings accounts with another bank and shift your money over before you file.  Otherwise, the banks may freeze your money once they are notified you have filed your BK.  If you don’t owe your bank any money, you’ll probably be fine. 

• Hire an attorney.  Yes, you can get the petition forms online and do it yourself.  Thanks to the so-called bankruptcy “reform” legislation of 2005, filing a BK is a complicated maze of income requirements and other regulatory hoops.  You’re better off having an attorney lead you through the process and prepare your petition.  Otherwise, you risk having to return for another trustee meeting to correct your petition’s mistakes and you are naked and defenseless if your creditors come after you. 

• Whatever it takes, get it done.  Send your attorney the information and documentation they need as soon as they ask for it.  Take the credit counseling and financial management courses as soon as you can and get them out of the way.  The sooner you can put your bankruptcy behind you, the sooner you can get on with the next phase your life.

• Be organized.  For my first meeting with my attorney, I typed up a chart appropriately entitled, “Bob’s Credit Card Hell” listing the balances (in red) and the uncharged amounts (in black) for each of my accounts.  My attorney was able to easily assess my financial situation and proceed.  Help your attorney help you.

• The credit counseling and financial management courses are no big deal.  My attorney’s office set me up with an online course.  Each took about 90 minutes and for me, they were the financial equivalent of “Are You Smarter Than A Fifth Grader?”

• Exercise.  It will burn off BK stress and, if you are unemployed, get you out of the house and amongst humanity.  It doesn’t have to cost money.  Just walking around my neighborhood helped me work through the emotions that come with a major life change.  I swim four coached workouts a week with a masters club, which does cost me money, but the focus, friendships and sanity I have gained are worth it.

• Don’t isolate.  Bankruptcy is a rough emotional passage requiring a serious readjustment of your priorities and self-image.  Holding everything inside and sitting in front of the computer surfing the internet for hours on end can be tempting.  Open up.  Share what you’re going through with your family and friends. Go outside and be around people.  You are not alone, even if it feels like you are.

• Watch “The Suze Orman Show” and “On The Money” with Carmen Wong Ulrich on CNBC.  You’ll learn about the financial mistakes that led you to bankruptcy and the financial habits that will lead you beyond it.  You’ll hear inspiring stories about people who have faced tough financial times and triumphed.  You’ll also hear stories of financial misbehavior so outrageous you’ll feel like you’re Warren Buffett.

• Cultivate abundance.  By its very nature, bankruptcy is about lack.  Focus on what you DO have and what you need to do to build your best life.

• Your new pay-as-you-go life starts now.  I don’t miss those extraneous dinners out, those $10 glasses of wine, that grande mocha latte, that land telephone line.  Now that I’ve taken control of my finances, I’m better off without them.