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Before, during and after personal bankruptcy -- what to expect

Californians who find themselves in a bad financial situation may think their options are limited. In the search for a fresh start, or with the hope that they can stop foreclosure on their homes, many people will turn to bankruptcy. When this happens, people tend to think they have set out on a path from which there is no coming back. But that isn't necessarily the case; your life after bankruptcy can return to normal. Still, it is a good idea to avoid falling into any bad fiscal habits that may have contributed to the bankruptcy in the first place.

When an individual files for bankruptcy -- Chapter 7 bankruptcy, in particular -- the purpose of the process is to allow the filer some time to make things right in terms of debt obligations. Along the way, the filer can establish a firmer financial footing.

A Chapter 7 bankruptcy, sometimes known as a "liquidation" bankruptcy, is the process whereby a bankruptcy trustee will sell off the filer's non-exempt personal property and use the proceeds to pay down the filer's debts. This is the part that many people worry about when considering bankruptcy. The thought of having to box up their possessions and turn them over to a trustee can cause an overflow of emotions. But the exemptions in the bankruptcy process may be more extensive than you think. When the liquidation process is finished, any remaining debt is discharged, leaving the filer with a financial fresh start.

After it is all said and done, many California residents who have gone through the bankruptcy process will swear that they will never use a credit card again. But it is usually a good idea to rebuild credit, though it never hurts to practice financial discipline by purchasing only what can be paid for in cash.

Source: MSN Money, "3 things I learned from bankruptcy," Andrea Whitmer, June 26, 2012

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