• 09
  • May
    2011

Last week, we looked at some of the most common myths regarding personal bankruptcy. Because these bankruptcy uncertainties can easily confuse and deter someone who is thinking about filing, it is important to dispel proper information about the bankruptcy process.

Myth #3: You will be forced to give up your retirement assets. There are certain assets that are exempt from liquidation and repayment to creditors under either Chapter 7 or Chapter 13 bankruptcy. Retirement accounts, such as 401(k) accounts and IRAs, are included in this category. This allows debtors to maintain their retirement accounts, with the hopes that doing so will allow them to avoid a second bankruptcy filing later in life.

However, if the debtor has taken money out of a retirement account prior to the bankruptcy filing, that amount will be susceptible to liquidation and distribution. Therefore, debtors should consider their options and their potential for a bankruptcy filing prior to taking any funds from their retirement accounts.

Myth #4: Debtors may only file for bankruptcy once. There are no statutory limits on the number of times that a debtor may file for bankruptcy. However, there are rules regarding timing. For example, debtors who filed for Chapter 13 bankruptcy may only do so if they have not been discharged from a separate Chapter 13 or a Chapter 7 within the previous two or four years, respectively. Similarly, a debtor who files for Chapter 7 may not have filed another Chapter 7 within the previous eight years.

Myth #5: Bankruptcy will ruin your credit forever. Bankruptcy certainly does affect a filer's credit rating, but not forever. After 10 years, a bankruptcy no longer appears on a credit report, and it becomes easier for filers to secure new credit. In addition, creditors may be willing to extend credit before that 10 years is up, if the credit report shows that the filer has been discharged from the bankruptcy and that the liquidation or repayment has been finalized.

Source: San Francisco Chronicle, "5 Myths About Personal Bankruptcy", Angie Mohr, 5 May 2011