In the last post, we began a discussion of some of the harmful myths that surround bankruptcy. Once we clear away these false ideas that are spread through misunderstandings, we can begin to consider whether or not bankruptcy is the best option for a debtor based on hard facts.

Here are some more bankruptcy myths:

If you file for bankruptcy, your credit will be ruined forever
Bankruptcy is certainly a black mark on your credit report, but not a permanent one. The bankruptcy disappears from your credit report after ten years, and most people are able to obtain credit long before that. In fact, in many cases, filing for bankruptcy and putting your finances in order can lead to a better credit rating in the long run.

You can only file for bankruptcy once
This is not true. There are some restrictions, but there is no once-in-a-lifetime limit. To file for Chapter 7, you cannot have filed for Chapter 7 in the last eight years. To file for Chapter 13 reorganization, it needs to be two years since your last Chapter 13 case or four years from your last Chapter 7 case.

You lose your retirement funds if you file for bankruptcy
No, as a matter of fact, retirement accounts such as IRAs and 401(k)s are exempt from liquidation in bankruptcy. This is important to keep in mind before tapping retirement funds to pay debts. A worst-case scenario is taking money out of retirement accounts to pay debts, then filing for bankruptcy anyway and having depleted retirement accounts that would have been safe from creditors.

Bankruptcy reform has made it too hard to qualify for bankruptcy protection
There is a means test for Chapter 7, meaning if you have enough income you will have to file under Chapter 13. However, most debtors who desire a Chapter 7 liquidation still qualify for it, even with the means test. A Fort Lauderdale Chapter 7 bankruptcy attorney can advise you on your qualifications and best options.

Separating fact from fiction will always help debtors make clear-headed decisions about putting their finances back in order.

Source: SF Gate "5 Myths About Personal Bankruptcy" 5/5/2011