3 Tips for Rebuilding Your Finances After Bankruptcy

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Bankruptcy may feel like a financial endpoint, but in reality, it’s a new beginning—a chance to reset and rebuild your financial life. While the road to recovery is undeniably challenging, it’s far from impossible.


What is Bankruptcy?


A lot of people think of bankruptcy as a last resort – an embarrassing step to prevent your life from crumbling away. But it’s much more useful to think of bankruptcy as a legal tool that serves the purpose of providing relief when you can’t pay back certain outstanding debts.


“Bankruptcy is a proceeding where a judge and court-appointed trustee examine the assets and liabilities of individuals, partnerships and businesses who’ve concluded they can’t pay their debts,” Debt.org explains. “Bankruptcy laws, written to provide a second chance after a financial collapse, require individuals and businesses to follow a number of procedural steps.”


There are numerous types of bankruptcy – so don’t assume they’re created equal. They’re Chapter 7, Chapter 11, and Chapter 13 (to name a few). The specific circumstances of your finances, debt, and future goals will determine which one is best suited for your situation. 


But, regardless, you’ll want to speak with a bankruptcy attorney to help you determine which type is right for you. From there, the emphasis is on how to recover from bankruptcy with efficiency and speed.


The Process of Rebuilding After Bankruptcy


Okay, now that we understand what bankruptcy is and how it works, let’s explore the most important part: Rebuilding your finances on the back end so that you can move on with your life and experience a future where you can use money as it was intended. Here are some steps to take:

  • Work on Reestablishing Your Credit the Right Way


After bankruptcy, one of the most crucial steps towards financial recovery is rebuilding your credit. While bankruptcy may have negatively impacted your credit score, it’s important to understand that you can bounce back.


The irony of repairing your credit is that you have to take on debt in order to do it. That can be enough to stir up some financial trauma in your life if you aren’t careful. The key is to be disciplined and strategic in your approach. 


“It can be tempting to accept every offer of credit that is thrown your way after filing for bankruptcy, but the truth is that you need to be smart about your finances,” attorney Rowdy G. Williams emphasizes. “Make smart choices. Working with credit can get you burned if you aren’t smart about it-which is why you need to be careful. Don’t overextend yourself and make sure to work with reputable companies.”


Start with secured credit cards and use these to slowly build up your score enough to get an unsecured credit card. Focus on spending on your card each month and paying back in full by the due date. But please note that rebuilding credit takes time. It will take months and months of consistently doing this to get your credit back into a respectable range.

  • Create a Sustainable (and Conservative) Budget


The next step is to create a sustainable budget that doesn’t put you at risk of falling into unnecessary debt. 


Begin by taking a comprehensive look at your current financial situation. Calculate your total monthly income, including any sources of earnings, benefits, or side hustles. Next, list all your essential expenses, such as rent or mortgage, utilities, groceries, transportation, and insurance.

Identify non-essential expenses, such as dining out, entertainment, and subscription services. (These may need to be trimmed down during your recovery period.)


Based on these numbers, create a detailed budget that breaks down every penny of income and spending. Be conservative with your numbers, too. If your electricity bill ranges from $75 to $125, go ahead and mark it down as $125. This gives you flexibility in your budget. (Even if you pay less that month, you end up falling within your budget.)

  • Establish Financial Discipline


The key to staying out of bad debt over the long run and maintaining a respectable credit score is to establish financial disciplines that keep you on track. Ultimately, this comes down to living within your means. It’s better to live a $50,000 lifestyle on a $75,000 salary than to over-extend and live a six-figure lifestyle. Ultimately, by keeping your expenses low today, you can pave the way for greater luxuries in the future.


Hello, Future


Bankruptcy is a tool – nothing more and nothing less. It’s not a death sentence, and it’s not a “get out of jail free” card. It’s a legal tool that, when used correctly, can help you address unfortunate circumstances and set you up for a comeback. 


But to enjoy that redemption story, you need a plan for rebuilding your finances. Use some of the tips in this article to get started sooner rather than later!