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NEW YORK (MainStreet) — There is good news for consumers and the economy on the personal bankruptcy front.

According to the American Bankruptcy Institute, bankruptcies were down 14% last year, to 1.185 million from 1.379 million in 2011.

That’s the lowest in five years, the ABI reports. It’s also a trend that should continue.

“The 2012 filings represent the lowest total since the financial crisis in 2008,” ABI Executive Director Samuel J. Gerdano says. “With low interest rates, reduced consumer spending and continued deleveraging by households, bankruptcy filings will likely continue their decline in 2013.”

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Even so, there are still well over 1 million bankruptcies expected this year, so the bottom line for debt-rattled consumers is to avoid joining that group any way they can.

That’s where Todd Hills, chief executive of, an online pawnbroker, can help. Hills pawned his own horse saddle in the late 1980s and wound up working for the pawnbroker, ultimately making a career out of the business. He says there are valid ways to “keep the reality of bankruptcy at bay.”

Here are Hills’ top five ways to avoid bankruptcy. Not coincidentally, they’re also five good ways to get your financial life back on track:

  • Work with your lender: Hills says that, time and time again, consumers don’t pick up the phone and talk to a creditor they’re struggling to pay money to. If the phone is ringing, he says, that’s a golden opportunity to work out a deal — maybe even for less money owed — to pay off the debt and eliminate late fees and charges.
  • Get counseling: It’s perfectly OK to contact a credit counselor to discuss a plan to pay back your debts. In fact, Hills recommends it. But make sure the credit firm is a reputable one. After that, the process is fairly straightforward. “The agency negotiates with creditors for you to eliminate late fees, lower interest rates and extend terms,” he says. “You, in turn, make a monthly lump sum payment to the agency, and they pay your creditors for you. Such a program generally lasts three to five years.”
  • Cut back: Maybe you’ve heard the term “living below your means”? Hills swears by it, and says you should, too. “Living beneath your means is the key to a stable financial life,” he says. “When your debt is out of control, your best bet is to take a proactive approach and get rid of items before you lose them. For instance, if you have two cars and are struggling to make the payments, selling the most expensive car before it’s repossessed gives you money to pay down debt and helps you avoid having a bad situation turn worse.”
  • Find more cash: This one isn’t easy, but it may be needed to avoid bankruptcy. Hills advises taking a second job or working overtime to catch up on debt. If you can downsize your financial life and add some income, you’ll go a long way toward reducing your long-term debt, he says.
  • Create an emergency fund: Even if you “start small,” building an emergency fund is still a great personal financial strategy. Part therapy and part financial firewall, an emergency fund is a big step in, well, sidestepping bankruptcy. “Once the balance starts to rise, you’ll find yourself more optimistic about your financial future and more likely to save even more,” Hills says.