I have previously mentioned how public policy and circumstances beyond our control limits our ability to avoid bankruptcy. Now I want to mention what you can do to avoid personal bankruptcy.
First, the secret to wealth creation is to learn to live below your means. In this regard, I agree with Stephen Snyder at www.lifeafterbankruptcy.com. If you have been through bankruptcy, Stephen's site is a good one for learning about how the credit system works and personal budgeting. The only real criticism I have of him is his recommendation to his readers that they invest in real estate. With the housing bubble now in full bust mode, now is not the time to invest in real estate.
There are many, many people who preach this doctrine. Dave Ramsey is another http://www.daveramsey.com/. Let me make clear that I do not subscribe to Dave Ramsey's idea of never using credit. Rightly or wrongly, too many things are based on our FICO score. I do agree with the principle of living below your means and responsible financial management.
Secondly, right now all of the best minds in the financial sector seem to be saying "cash is King."
Volume on Wall Street is very low, and most of the big brokerage firms seem to be staying out of the market and keeping everything in safe savings accounts. I saw one mutual fund that had no investments other than savings. Now that's bearish for you.
In the coming years, unless the Fed starts printing vasts amount of money to inflate consumers out of debt (an unlikely scenario as Bernanke has pointed out that Congress' mandate to the Fed is that the Fed control inflation), there will be several defaults that will accelerate in the coming years. For people who are entrepreneurs, this will become the time to buy on the cheap.
Last year, for the first time in many years, consumers incurred more debt (108%) than they made in income. Part of it was attributed to people incurring long-term debt such as housing, but because of this mad rush into real estate investments, a lot of those same people were buying real estate at the top of the bubble. Now that real estate prices are starting to come down, a lot of these people who bought based on an irrational belief that real estate, as a commodity, can never go down in price are going to be in for a rude awakening. See the Housing Bubble Blog http://thehousingbubbleblog.com/ for anecdotal evidence. There has also been a lot of fraud in the mortgage and housing mania. See the Mortgage Fraud Blog http://www.mortgagefraudblog.com/ for anecdotal evidence of that.
Most of the best economic minds are predicting an economic slowdown. The way to survive the coming economic onslaught is to cut your expenses and live frugally.