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Bankruptcy. We know what it is but don't like to say it, and we hope we never have to go through it. The mere thought of bankruptcy sends shivers down our spines. For many, it is the ultimate nadir of personal finance.

Bankruptcy, according to financial guru Dave Ramsey, is often considered one of the top five life-altering negative events a person can experience, along with divorce, severe illness, disability and the loss of a loved one. Ramsey says that bankruptcy "leaves deep wounds both to the psyche and the credit report."

Bankruptcies in the United States were abundant last year, with more than 1.4 million Chapter 7, 11, 12 and 13 filings through the end of 2011, according to data from the U.S. Courts. As it is with anything in life and money, myths about bankruptcy abound. A person who declares bankruptcy isn't necessarily irresponsible with his money, or in search of an easy bailout. The reasons individuals or businesses file for bankruptcy vary, but one thing is certain: Going bankrupt means legally declaring insolvency.

When you're in over your head and can't pay back your debts, it may seem like there's no alternative. But filing for Chapter 7 doesn't have to be your only choice. There are a few preventive measures and last-ditch moves you can take to avoid bankruptcy and get back in the black -- hopefully, for good.

1. Settle/negotiate your debts. Commonly, Chapter 7 bankruptcy is a liquidation -- a wiping clean or erasing -- of your debt. But it can also mean relinquishing many of your assets or property. If you're on the brink of filing for Chapter 7, it is possible to hold on to your property and still pay back your creditors by settling your debts instead.

Debt consolidation is an arrangement with lenders to repay your debts without losing any of your assets. In this case, you would consolidate your debts into a single loan with one monthly payment at a lower interest rate. (Should you consolidate your debt? Find out with MSN Money's calculator.)

Debt settlement works similarly. Like debt consolidation, it means that you must negotiate some kind of deal with creditors. If it's likely they'll get their money back, most lenders will work with you to devise a reduced-payment plan schedule. This may include waiving your current payments if you agree to make larger payments down the road to make up for the delay. Reducing credit card debt can be approached in either of two ways: the snowball method, where you pay smaller bills first and work your way up; or the avalanche method, where you pay down larger debt so that your payments decrease as you go.

The chance to pay down your debt keeps you in control of your finances and away from having to file for bankruptcy.

2. Sell your property. In a Chapter 7 case -- total bankruptcy -- your property is put up for review by a trustee, who decides what to sell or liquidate in order to settle your claim. You can avoid this completely by being proactive and selling some of your belongings before bankruptcy is on the table.

If you're in debt, consider what you can afford to part with. Do you have a second car, a collection of antiques or other valuables? You might want to consult an appraiser to determine the value of your property. This doesn't mean you need to clear out your home, but taking to Craigslist, eBay or a public auction may earn you some much-needed funds.

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Even if this approach raises only a small amount of the cash needed to pay off some debt, it may be better than being forced to surrender your property in a bankruptcy filing.

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3. Borrow money from family or friends. It takes a lot of pride swallowing to ask a parent, sibling or trusted friend for financial help. Many personal relationships have been disrupted by money quarrels, but if you're near bankruptcy, don't be ashamed to make the approach.

Just make sure that it will be worth your time and their money. Before asking for a friendly loan, determine how much money you'll need to raise to avoid bankruptcy by creating a budget. Figure out what you've been able to afford, and you'll know how much more to ask for.

Asking your family for money when you're in danger of going bankrupt involves a lot of trust. Ask yourself: Are they 100% on board to help you? Will their financial generosity really help to solve your problems, or will it be a short-term approach to delaying your impending, or inevitable, bankruptcy? Most important, have you considered how you'll pay back both your creditors and your family or friends in a timely fashion?

4. Restructure your mortgage. If you're paying off your home, restructuring or refinancing your mortgage may also help make your debt more manageable. By arranging a new mortgage payment plan, you may be able to save money toward paying down your other debt. And it may be worth it if you can avoid bankruptcy or foreclosure.

There are two ways you may be able to adjust your mortgage payments. The first option is to negotiate an agreement with your housing lender to reconfigure your mortgage under a new payment plan. See if you can devise a new or temporary payment schedule under the same terms of your original mortgage.

A second approach is to refinance your mortgage altogether, which may include applying for a lower, adjustable interest rate extended over a longer period of time. The money you save on the front end can be useful in paying off your remaining debt and staving off the threat of bankruptcy.

5. Make real sacrifices. Sometimes the most surefire way to save money is to simply cut back. If you're teetering close to the edge of Chapter 7, reassess your budget and get rid of unnecessary expenses. Are you in over your head on your credit cards? Can you do without eating out or going to the movies? Canceling that gym membership or cable TV service can free up a lot of money.

Distinguishing wants from needs is a crucial part of learning how to save money and reduce debt. Start living within your means and spending less than you earn, and the savings will add up.

If going it alone doesn't work for you, a credit counselor or personal finance consultant may be able to help you get your finances back on track. In this case, your No. 1 priority is rearranging your budget so bankruptcy isn't even an option.

Trying out some of these suggestions could go a long way in helping you avoid bankruptcy. You may find that following one, all or a combination thereof makes the difference. It will be difficult; there's no quick fix or easy solution to digging out of debt. Taking financial control requires discipline and a new approach to money, so that you can make it work for you, not your creditors, in the long run.

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