How To Rebuild After Bankruptcy

By Tracy Wright
money in jar

Bankruptcy can often be seen as an embarrassing way out, however, it’s simply a legal method employed when someone cannot pay their debts. In essence, bankruptcy erases debt including personal loan, credit card, medical bills, overdue rent and past bills. “[Bankruptcy] offers a fresh start for people who can no longer afford to pay their bills,” stated Investopedia.

Bankruptcy can be filed in several types of forms. For individuals, the two most common types of filings are Chapter 7 and Chapter 13. The main difference is that Chapter 7 involves the liquidation of assets while Chapter 13 allows for debt repayment plans with creditors. Financial liquidation is defined as converting assets into cash in a debt clearing process. All types of bankruptcies go through federal courts, according to US Courts’ official website.

Due to the serious ramifications of filing, people who choose this route have likely exhausted every option.

“Filing for bankruptcy can be a saving grace for people drowning in debt. The numbers support that contention. The American Bankruptcy Institute says that 95.3% of people who file Chapter 7 bankruptcy are successful,” says

Why Do People File For Bankruptcy

According to, some of the most common reasons for filing bankruptcy include legal costs from divorce, medical bills, misguided credit card use, job loss and emergencies like natural disasters, burglaries or house fires.

The Nest, a financial blog, strongly recommends consumers understand that filing for bankruptcy can have an extremely detrimental effect on their credit scores and limits. For a Chapter 7 filing, credit scores are affected for 10 years while it’s typically seven years for Chapter 13.

“[Filing for bankruptcy] will likely lower your credit rating, making it more difficult to get a loan, mortgage, credit card, buy a home or business, or rent an apartment,” said Investopedia. “Any creditors or lenders you apply to for new debt will see the discharge on your report, which can prevent you from getting any credit.”

It’s also important to note that not all types of debts can be forgiven, such as child support, tax liens and recent tax debt, according to Nerd Wallet. Typically, student loan debt is not able to be erased.

How to File for Bankruptcy

To file for bankruptcy, a debtor files a petition with the bankruptcy court. This is often achieved through the help of a lawyer specialized in these types of cases. A trustee is then typically assigned to the person filing, and this person represents you in bankruptcy court.

But prior to filing, recommends that you understand the complex steps needed to prepare to file. This includes:

  1. Getting financial records together like debts, assets, income, and expenses.
  2. Seek credit counseling within 180 days before filing, which is required.
  3. File the petition with the assistance of a bankruptcy attorney. Although hiring an attorney is not required, it’s highly recommended.
  4. Finally, meet with creditors.

“When your petition is accepted, an appointed trustee sets up a meeting with your creditors. You must attend but your creditors are not required to be there. It’s an opportunity for them to ask you or the court trustee questions about your case,” said

So What Does Life After Bankruptcy Look Like?

It won’t be easy, but you can get back on track after filing for bankruptcy. recommends the following tips:

    be asked for copies of the bankruptcy files in the future, especially when applying for a mortgage, loan, or for other financial products.”
  • START SAVING MONEY AND PRACTICE RESPONSIBLE FINANCIAL HABITS like establishing an emergency fund and building a proper household budget. Better budgetary skills include tracking all expenses and all dollars in and out.
  • WORK ON ESTABLISHING GOOD CREDIT. This includes paying all bills on time, open a secured credit card backed by your savings account, and reporting monthly expense payments toward your credit report.
  • SET CLEAR FINANCIAL GOALS including amounts saved, emergency funding and retirement.

Visiting a financial counselor may give you more valuable information on how to effectively manage your money and budget and provide advice on how to rebuild your financial future.

Related Articles:

Money Mindfulness

Talking Money With Your Partner