11 Ways to Bounce Back After Bankruptcy

The steps you take after bankruptcy can set the tone for where you end up financially down the road. Find out how to get on the right track.
Updated Dec. 12, 2023
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Each financial situation leading to bankruptcy is different, but the end result is often the same: your credit is ruined and you’re facing up to 10 years of having a bankruptcy on your credit report. But you get a potentially debt-free fresh start and the opportunity to avoid any potential money mistakes of your past.

You can now focus on bouncing back after ruining your credit and putting the financial pieces of your life back together. These 11 important steps could help you build good financial habits so you can rebuild your credit.

11 ways to bounce back after bankruptcy

Identify your bad money habits

If you know what led to your bankruptcy, you know what actions and habits to avoid in the future. This may not apply if you racked up debt from a serious medical condition or something similar that was out of your control. But spending more than you can afford or mismanaging your finances can quickly lead to bankruptcy if the unexpected occurs.

This could include losing your job or getting divorced. An unexpected financial strain may have caught you off guard, but you can prepare better this time around. Include an emergency fund in your financial plans, as well as other solutions for past bad habits.

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Check your credit report

It’s especially important to frequently check and monitor your credit report after a bankruptcy. This will give you a starting point for where you are and a measuring tool for how much you’re progressing in the future. It’s also vital to make sure you read your credit report to spot any potential errors.

Disputing credit report errors can help you remove obstacles that may be blocking your credit rebuilding process. As you get errors fixed and continue to monitor your report, be sure to check your progress at the same time. Your credit report directly correlates to your credit score, so when you see positive information being reported, it’s likely your score is improving too.

Establish financial goals

Setting and sticking to financial goals will help you correct bad money habits and might even help you cope with financial stress. If you have clear and realistic short- and long-term goals in mind, it can be easier to focus on changing your financial situation.

Your goals will be unique to your situation, but they could include a long-term goal of growing your credit score to 600 or more. This goal may involve multiple short-term goals, one of which may be slowly introducing credit products back into your life.

Remember to keep track of your goals so you can see how far you’ve progressed and get the motivation you need to continue pushing forward.

Set up automatic payments

On-time payments play a big role in positive credit history, accounting for 35% of your FICO® score, which is one of the most widely used credit scoring models. If you want to make sure you don’t miss any payments, consider using the automatic payments feature.

Autopay is typically available for most bills and lets you set a date each month to automatically pull funds from a linked bank or credit account to pay your bills. This can help you avoid missed payments and work toward rebuilding your credit.

Create a budget

Creating a budget can help you learn how to pay off debt by putting limits on your overall spending. This typically involves adding up all your monthly income and expenses and seeing where you can cut down on spending. When you understand where your money is going, it can be easier to make adjustments and stay on track with financial goals.

There are several budgeting styles ranging from basic to complex, but the budgeting process can be as simple as setting aside income for necessities, including groceries and utilities, and then putting away some of what’s left into savings.

It may also be worth thinking about placing your money in a high-yield savings account. The best savings accounts offer higher-than-average interest rates that could help grow your funds over time.

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Consider a reputable credit repair company

Financial opportunities might be slim after a bankruptcy, which is why it could make sense to seek financial guidance from a reputable credit repair company. The best credit repair companies might help you get negative items removed from your credit report, which can potentially increase your credit score. Some also offer valuable financial guidance, which may help you get your finances back on track. Keep in mind that credit repair services cost money, so weigh the pros and cons of using them before making a decision.

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Develop a positive payment history

Setting up autopay can help you avoid missed payments and work toward developing a positive payment history. But if you want to take it one step further, consider using a tool like Experian Boost®3 to get better credit scores.

Experian Boost is a free service from Experian, one of the three major credit bureaus, which may help boost your FICO® Score with positive payments on common expenses. This could include utility bills, your Netflix payment, and your phone bill. If you aren’t able to use credit products to grow your credit, Experian Boost offers a convenient alternative to get positive payment information on your credit report.

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  • FICO® Score refreshed every 30 days upon sign in and one free personal privacy scan

Avoid applying for high-interest loans

Your credit score will be hurting after a bankruptcy, which means you likely won’t qualify for the best interest rates on credit cards or loans. It may be tempting to take out a loan if you need some money, but payments on high-interest loans can be hefty and you might not be able to keep up. This could easily set you down a path to end up in debt again and harm your credit even more.

If you’re losing sleep over money, be sure to have a plan in place before deciding to go with a high-interest loan. You need to be certain you can make the payments and that the lender is reputable and easy to work with. But overall, it’s likely not worth taking out a high-interest loan unless you have no other alternatives.

Get a credit-builder loan

Credit-builder loans aren’t like your typical personal loan where you borrow money and pay it back with interest over time. Instead, these loans often hold your borrowed money until it’s fully paid off and then release it to you. So if you need money quickly, this probably wouldn’t be the avenue to take. But if you want to build your credit history, a credit-builder loan could make a lot of sense.

As you responsibly pay off the loan, your positive payment history is reported to credit bureaus to help increase your credit score. This is an opportunity for building your credit history when you can’t qualify for other credit products.

Consider a secured credit card

Secured credit cards can also help you build your credit history if you have poor or no credit. These cards typically require a refundable security deposit to qualify, which will act as your line of credit on the card. So if you deposit $300, you would have a $300 line of credit.

The best secured credit cards, such as the primor Visa Gold Secured Credit Card, report your on-time payments to credit bureaus to help improve your credit score.  Additionally, secured credit cards function just like typical credit cards, so you shouldn’t have any issue using them to make everyday purchases in stores or online.

Certain secured credit cards may offer you higher credit limits over time or give you the opportunity to upgrade to an unsecured credit card. This means the security deposit restriction would be removed and the deposit refunded and you would get a typical line of credit.

Check out our Sable Secured Credit Card review.

Get a regular credit card

Your credit score may tank after bankruptcy, but you’ll still have options for rebuilding your credit with different credit products. This includes some of the best credit cards for poor credit, with more than a few options to choose from. You have to expect any rewards earning potential on these cards to be rare, and some of them may have annual fees or security deposits. But to get back to pre-bankruptcy levels of credit, you have to start somewhere.

The bottom line

Bankruptcy isn’t the end of the road for your finances. In fact, it’s far from it. These tips can help you get back on track by giving you actionable steps to take immediately following a bankruptcy. It might be difficult to see where you can end up over time, but setting short- and long-term goals can help you track your progress and push forward.

If you’re thinking about filing for bankruptcy, remember to weigh the bankruptcy pros and cons in your life before making a decision. It will likely ruin your credit, so you’ll have to rebuild your credit history from the ground up. But it can help eliminate eligible debts at the same time. Considering these and other factors can help you make the decision that makes the most sense for your financial future.

Experian Boost Benefits

  • Get credit for making on-time payments for your qualifying rent, utility bills, and streaming services5
  • 100% free — no credit card required
  • New credit scores take effect immediately
  • FICO® Score refreshed every 30 days upon sign in and one free personal privacy scan

Author Details

Ben Walker, CEPF, CFEI® Ben Walker, CEPF, CFEI®, is credit cards specialist. For over a decade, he's leveraged credit card points and miles to travel the world. His expertise extends to other areas of personal finance — including loans, insurance, investing, and real estate — and you can find his insights on The Washington Post, Debt.com, Yahoo! Finance, and Fox Business.

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