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Filing for bankruptcy can feel like the end of a long, exhausting process, but it's also the start of a new financial chapter. Once you've filed, you may have questions about how bankruptcy affects your credit and what steps you can take to move forward.
CNBC Select spoke with Leslie Tayne, a debt relief attorney, about what to expect after filing, which financial mistakes to avoid and how to start rebuilding your credit.
After a bankruptcy discharge, qualifying debts are legally cleared, meaning you're generally no longer personally responsible for paying them. However, not all debts qualify, and certain liens may remain. In Chapter 7, a discharge typically comes a few months after filing; in Chapter 13, it generally follows completion of the repayment plan.
Bankruptcy also remains on your credit report for up to 10 years from filing for Chapter 7 and seven years for Chapter 13. It can lower your credit score and make it harder to qualify for credit cards, car loans or a mortgage, or mean paying higher interest rates. The impact varies, but bankruptcy doesn't prevent you from obtaining credit forever. With time and responsible financial habits, you can begin rebuilding your credit and expanding your options.
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"The first year after filing for bankruptcy should be about prioritizing financial stability," Tayne says. That means adjusting to a budget, rebuilding savings and learning to manage credit responsibly, including "unlearning financial habits that didn't serve you." Because qualifying for new credit may be more difficult at first, she recommends focusing on paying bills on time, keeping spending manageable and avoiding unnecessary new debt.
"The first year can be financially disheartening, but bankruptcy provides a fresh start," she says. "Just keep in mind that recovery takes time, and stay the course."
It's also important to know that bankruptcy doesn't eliminate every debt. "Some debts simply aren't dischargeable or can survive bankruptcy," Tayne says, pointing to student loans and certain tax debts as examples. Whether these obligations can be discharged depends on the circumstances and applicable legal requirements. Talk with your bankruptcy attorney about which debts will be cleared and which you'll still need to repay.
Taking on new debt before you're financially ready is one of the biggest mistakes to avoid, says Tayne. Many people receive new credit offers after filing for bankruptcy and may be tempted to start spending again before they've established a stable financial foundation. Instead, focus on managing expenses, building an emergency fund and ensuring that any new credit is affordable.
For some people, getting back on track may also mean reducing major expenses, such as housing costs. Moving somewhere with lower rent can free up money each month, although it's important to weigh potential savings against moving costs and other practical considerations.
If overspending contributed to the original debt, developing healthier financial habits can help prevent future financial problems. However, bankruptcy can result from many circumstances, including job loss, medical bills or other unexpected expenses. As Tayne points out, shame and avoidance can make it harder to ask for help, but reaching out to a reputable financial counselor or other qualified professional can be an important step toward rebuilding financial stability.
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Rebuilding your credit after bankruptcy takes time, but consistent financial habits can help you make progress.
Pay your bills on time. Start by keeping up with bills and financial obligations that remain payable after bankruptcy. "It takes savvy budgeting and perseverance," Tayne says. You may need to adjust your living expenses to make room for essential payments and avoid falling behind.
Get credit for bills you're already paying. Experian Boost* is a free tool that lets you add eligible on-time payments for expenses such as phone bills, utilities and certain streaming services to your Experian credit file. These payments typically aren't included in traditional credit scoring, but adding them could help improve your score. Experian Boost won't erase the impact of bankruptcy, and results vary: some users see their scores increase, while others may not see a change.
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Check your credit reports for errors. Review your credit reports from Equifax, Experian and TransUnion to make sure the information is accurate and that debts included in your bankruptcy are reported correctly. If you find errors, dispute them with the credit bureau reporting the inaccurate information and, if appropriate, the company that supplied it. Correcting inaccurate information can help ensure your credit reports reflect your actual financial history. You can check your reports for free at AnnualCreditReport.com.
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Do the math before taking on new debt. Whether you're considering a new credit card or a loan, make sure the payments fit your budget before committing. Consider the interest rate, fees and total repayment cost, too. Building a realistic budget and sticking to it can help you manage future borrowing responsibly, Tayne says.
Understand how Chapter 7 and Chapter 13 can affect your recovery. Chapter 7 and Chapter 13 bankruptcy follow different processes, which can affect how people rebuild their finances. "Chapter 13 usually involves a repayment plan, which can take three to five years, and that alone is draining," Tayne says. Ultimately, your financial recovery depends on several factors, including your income, essential expenses, payment history and how consistently you manage your budget moving forward.
"It's so common for consumers to think that once they file for bankruptcy, their finances will never get back in order, or that it's an easy way out," Tayne says. "This isn't true."
In her 25 years as a debt attorney, Tayne says she's seen many clients file for bankruptcy and go on to achieve financial success. But rebuilding takes time. "It's not a wipe and go but a rebuilding process. It takes discipline and commitment," she says.
Take things one step at a time. Focus on managing your expenses, paying your bills on time and avoiding new debt you can't afford. With patience and consistent financial habits, you can work toward a more stable financial future.
At CNBC Select, we work with experts who have specialized knowledge and authority, grounded in relevant training and experience. For this story, we interviewed Leslie Tayne, a debt relief attorney at Tayne Law Group.
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.