Rebuilding Your Finances After Bankruptcy

Calendar Icon Updated March 27, 2020

If you succeed through bankruptcy court, you’re likely worried about a lot of downsides — a lowered credit score, a dent on your financial record and the difficulty of getting a loan or mortgage. But, bankruptcy isn’t the financial kiss of death that many people fret over. Even though bankruptcy will impact and potentially limit your future financial resources, there are ways to come back from bankruptcy stronger than before.

First off, realize that bankruptcy exists for a reason: to help you out of a dire financial situation. Instead of thinking of bankruptcy as a death sentence, consider it a light at the end of an arduous financial tunnel. Now that you’ve made it through, you have the chance to chart a new future utilizing good money-handling habits that set you up for success.

Living With Less

One skill you’ll learn in the required post-bankruptcy education class is how to live within your means. This is the ability to only spend what money you make, and budget successfully to avoid using credit. Paying bills on time fits within this idea, and can help show future lenders that you’ve learned something from bankruptcy and are reliable. Living within your means can be difficult at first, because it’s easy to use credit cards or loans as temporary patches when payday is late or paychecks are short. But, establishing this habit can reset your spending habits and help you focus on your financial goals – whether that be saving for a trip, retirement or sticking to a repayment plan.

Holding Off On Borrowing

Contrary to popular belief, it’s possible to get credit after bankruptcy. It’s just that you might not get the best interest rates or the amount of credit you’re used to. But even though credit is obtainable, holding off on borrowing from creditors or lenders for some time after bankruptcy can benefit you by helping you establish good habits and giving you time to heal your credit history. One of the biggest factors in establishing your credit score is the amount of time you’ve had an account or debt, and how long it’s been since you’ve filed for bankruptcy. Because bankruptcies can be listed on your financial history for up to 10 years, it may take some time for you to repair your credit, but it likely won’t take that long.

Be Selective With New Credit

One way of repairing your credit is to be picky with the new accounts you open, such as credit cards. Opening a secured credit card can be a better option than an unsecured card. What’s the difference? A secured credit card can be used just like a normal credit card, but you’ll pay a deposit that can cover the balance if you default. This entices credit card companies to extend credit; if you maintain low balances that are paid on time, you can quickly improve your credit. Regardless of what kind of credit you choose, be sure you only take loans, credit cards and mortgages from reliable lenders; people with poor credit often struggle to find new lenders and it’s easy to fall prey to scammers who offer credit that’s too good to be true.

Create Emergency Funds

Most people who seek bankruptcy aren’t art aficionados who’ve spent more than they earn – they’re people who seek hardship from extensive medical bills or job loss. The best way to begin protecting yourself from a similar situation after bankruptcy is to begin saving for emergencies, but also future costs that may catch you off guard (like property taxes or a big trip). Creating a savings account can save you the stress of having to put expenses on a credit card or take out a high-interest loan. 

Follow the Terms of Your Bankruptcy

The fastest way to sabotage your finances and bankruptcy ruling is to ignore the terms of your discharge — that is, returning to old habits and failing to meet benchmarks set by the court. In many cases, this happens by missing repayment plan due dates, opening multiple new lines of credit or failing to attend a mandatory financial management course after your bankruptcy case ends. Not meeting the terms of your bankruptcy can have dire consequences as severe as revoking your judgment, meaning your debt will return and you’ll be back at square one.

It’s not impossible to repair your credit history after a bankruptcy. In fact, many people who filed bankruptcy are able to get desirable kinds of credit within several years following bankruptcy, and create better habits that prevent future financial losses.


Eligibility Team

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