Stock up, hunker down, worry less

In some cases, it may be better to throw in the towel -- to file bankruptcy or let your lender foreclose on your house -- than to struggle to pay impossibly huge debts. See "When bankruptcy is best" and "When to walk away from a mortgage."

You'll need expert guidance, though:

• If you're having trouble with your mortgage, contact a housing counselor approved by the U.S. Department of Housing and Urban Development to see what your options might be. Be especially wary of "investors" or others who contact you promising help. Many are scam artists ready to relieve you of whatever cash or equity you have left.

• If credit card bills are the issue, make two appointments -- one with a legitimate credit counselor who can advise you about lower-interest debt repayment plans and a second with an experienced bankruptcy attorney. Chapter 7 bankruptcy typically wipes out credit card debts and medical bills, but it may not be the best option if you have home equity or other assets to protect. In that case, a Chapter 13 repayment plan may make more sense. Your attorney can advise you.

If bankruptcy or foreclosure may be in your future, you should:

• Avoid tapping your retirement funds to pay bills. These accounts are protected from creditors.

• Continue regular contributions to your retirement. Bankruptcy judges frown on any efforts to stuff extra cash into retirement accounts just before a filing, but making your regular contributions should be safe.

More from MSN Money

• Share your savings tricks at Smart Spending
• The emergency fund you can eat
• Need a loan? Borrow like it's 1975
• A survival guide for the unemployed
• The consumer's guide to credit counseling

All these preparations may be unnecessary. The recession might not be as bad as some fear, or you might sail through it unscathed.

But being prepared certainly won't leave you worse off financially. And you might well be glad you made the effort.

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published Nov. 3, 2008

Video on MSN Money

The fear factor
Jim Paulsen of Wells Capital Management and Don Peebles, the CEO of Don Peebles Corp., discuss whether we are in a fear-based recession.

< previous |  1 | 2 |

Rate this Article

Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). Low

Thank you for rating.

High

• View all top-rated articles
• E-mail us your comments on this article
• Discuss in a message board