To avoid filing bankruptcy, you can maintain your credit, pay bills on time, and build a savings.  Some debts should have priority over other debts. This guide will show you which debts should be given priority, which ones should be at the bottom of your list, and if you do have to file for Chapter 7 or Chapter 13 bankruptcy, how planning ahead works wonders. Let’s begin.

Which Debts to Repay – Essential Debts
Essential debts are at the top of your list of bills, the ones with the most importance. Some of the consequences of not paying this will be pretty obvious. For example, without rent or mortgage payments, where do you expect to live? Without a car, how can you make it to work? Without utilities, where’s the power coming from?

Rent or mortgages are essential debts. If you rent a residence, and have nowhere else to go, that’s priority #1. On the other hand, before you file bankruptcy, if you own a home you’re paying a mortgage on, you might be able to sell the home and recoup some of your losses. Why would you sell? It just helps you avoid filing bankruptcy, and in some cases you might lose it anyway–so you can sell before you lose it. Certain homes might not sell for much of anything, especially if the housing market is bad. Weigh these pros and cons.

Child support is another essential debt. Why? You go to jail if you don’t pay them. And if you think not paying for a few months is okay, this will still show up as an unpaid bill–you have to pay it eventually. Bankruptcy does not cancel child support debt.

Cars aren’t always a must. You might have just lost your job and have access to many locations near your residence (like a grocery store). You might also sell your car before a bankruptcy to get enough money to pay other essential debts.

Lastly, taxes are a clear essential debt. You could lose your home and face stiff penalties if you do not pay your taxes every year.

Which Debts Are Secondary- Nonessential Debt
Nonessential debts have less priority, but will still be on your credit report for 7 years. Being a nonessential debt does not mean you won’t get in trouble for not paying, but if you have to choose between your house and paying back a friend, you have to make a choice. And though certain debts can be termed nonessential, such as gas, sometimes you just can’t go without paying the bills upfront.

Department stores are another nonessential debt. In this case you can be sued for not paying.

If you have a newspaper or magazine subscription, really you won’t owe that much. These are on the bottom of debts, but collection agencies can still harass you.

Legal and accounting come into play if you run a small business or regularly consult lawyers. These debts may be nonessential, but here again you can get sued for not paying.

Choosing Debts to Pay Before Bankruptcy
There are even more debts, including auto insurance, medical, credit cards, and student loans, which should be considered. So how do you follow a repayment plan for all of the bills one gets every month? How can you avoid bankruptcy? Create a list of expenses and budget yourself. Some of these debts are small in  terms of importance and price, but others could be quickly paid so you can focus. A debt repayment plan involves budgeting with this system: paying essential debts first, nonessential debts second, and always considering debts which can be both essential and nonessential in certain cases such as credit cards.

Before you file bankruptcy, you can budget. As bankruptcy isn’t for everyone and can be a life changing event, careful planning helps you get through this.