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What are some essentials to know if I am considering bankruptcy?

You have not yet decided for sure to file for bankruptcy, but it is something you are giving a decent bit of thought to. What are some key things you need to know?

One is to avoid new debt on your credit card. In fact, a bankruptcy might not wipe out recent charges.

Avoid new credit card debt

There is no doubt that bankruptcy is a valid and often successful way for people to get a fresh financial start. That said, it is a system that could be prone to abuse. That is why the courts and your creditors might frown upon credit card purchases you made soon before filing. If it is evident you made these purchases with no intention of paying the charges off, they might not be dismissed, or the court may not accept your bankruptcy case at all.

However, what if you need money for groceries and other essentials? It is probably fine to use your card because you can make up to $675 in purchases for necessities in the 90 days before a filing. You can also charge necessary items you had to purchase for job interviews, but if the total amount goes higher than the $675 cap, then you may have to defend these purchases. Save the receipts.

In other words, charging a grocery shopping trip is probably fine. Charging a $5,000 weeklong vacation to London probably is not.

Explore possible other options

Options other than bankruptcy may apply in your case. For example, you could try negotiating with your creditors to forgive part of your debt or change your loan terms. In a bankruptcy, creditors often get nothing, and after a negotiation, they might get at least part of their money back. One word of warning, though: Get any agreements in writing.

One option that you probably should not act on is taking money out of your retirement account(s). That money would be protected in bankruptcy, and you want to be financially secure in the long term.

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