Filing for bankruptcy can feel like you’ve hit the financial equivalent of rock bottom. While it does wipe out your old debt, bankruptcy stays on your credit report for seven to 10 years.

Despite this potential hardship, there are ways you can recover from bankruptcy.

7 tips to recover from bankruptcy

  1. Track your income and expenses
  2. Consider going “cash-only” for a period of time
  3. Diligently pay your bills on time
  4. Look for alternative methods to boost your credit score
  5. Try a secured credit card
  6. Avoid scams
  7. Monitor your credit regularly

1. Track your income and expenses

Budgeting can be difficult, especially if you’ve never created one or tracked your money before. But the first step in good money management is to understand how your total expenses compare to how much money you have coming in. Whether through a spreadsheet or your favorite online platform, there are plenty of ways to track expenses and income.

“In its simplest terms, a budget helps you keep track of how much money you have coming in, how much is going out, and exactly where it’s going,” says Amy Maliga, a former financial educator with Take Charge America, a Phoenix-based nonprofit credit counseling agency. “Following a budget helps you identify where you’re overspending and encourages you to take steps to reduce certain expenses.”

How to get started: To start, list out all of your fixed expenses, such as your rent or mortgage payment, electric and heating bills, car payments and anything else you’re required to pay monthly. It helps to factor in a monthly savings amount as well so you can get in the habit of saving for emergencies and investing for retirement if possible. Next, calculate your variable expenses, such as groceries, clothing and entertainment.

From there, compare your total monthly expenses to your total projected income for the month. If your income can’t cover your essential expenses, take a two-pronged approach: Look for expenses to trim but also strategies to increase your income. For example, you could apply for higher-paying jobs or take on freelance work.

The takeaway: The key to a solid budgeting plan is to keep things flexible and understand that not every month is a cookie cutter version of the one before it. Ultimately, a healthy budget will help you avoid racking up debts that can lead to bankruptcy again down the road. To stay on top of your spending, sign up for a Bankrate account to categorize your spending transactions, identify ways to cut back and improve your financial health.

2. Consider going “cash-only” for a period of time

Having a limited amount of cash on hand could keep you on budget and prevent you from charging more than you can afford on a credit card. Using cash can be temporary for you. It’s a good step to help mitigate excess spending, and once you’ve got a grip on your budget, you can re-introduce cards.

How to get started: You could use physical cash, but a more realistic option might be to load funds into a checking account and carry only your debit card with you. Once you estimate your monthly budget, this should be fairly simple to do — leave just enough money in your account to cover your essential expenses and stash the rest in a savings account.

“When bouncing back from bankruptcy, it’s important to change your spending habits,” Maliga says. “This will be easier to do if you plan a budget and designate a set amount of money you’re allowed to spend in each category. Once you’ve spent that amount, there’s no spending in that category until your next payday, or you move money from another spending category.”

Takeaway: Reliance on debt to cover everyday purchases can make bankruptcy recovery more difficult. Using cash only for a while can help you keep spending under control because you can only spend what you have available in cash at the time.

3. Diligently pay your bills on time

Paying every bill on time every time is critical to rebuilding credit after bankruptcy, debt settlement or credit counseling, says Michael Micheletti, director of communications for Freedom Financial Network, a debt relief firm.

“Doing so pays off, literally.”

How to get started: To help with this effort, set up a system that allows you to pay all of your bills by their due date. Many people find it helpful to set a calendar alert the day before a payment is due to avoid unintentional missed payments. Setting up auto-pay whenever possible can also help you avoid missed payments and ease the stress associated with forgotten payments.

Takeaway: On-time payments are a major part of your credit history, accounting for 35 percent of your overall score. Late payments tell lenders you’re not responsible enough with your money. They also make lenders cautious about lending money to you in the future.

4. Look for alternative methods to boost your credit score

A bankruptcy filing can stay on your credit report for up to 10 years and severely damage your credit score. After completing the bankruptcy process, you may find it hard to qualify for lines of credit, a credit card or a loan. That can be a catch-22. You can’t qualify for credit products, but you need to demonstrate good credit behavior to rehabilitate your credit score.

Fortunately, it’s possible to have regular utility bills such as electricity or even a phone bill counted toward your credit history.

How to get started: First, check with your landlord or utility companies to see if they participate in any service that would report your on-time payments to credit bureaus. You may ultimately have to take matters into your own hands. Experian offers a tool, known as Experian Boost, that allows customers to include certain utility and phone bills in their Experian credit reports to help increase their credit scores. TransUnion and Equifax don’t currently offer this service, however, so it doesn’t impact scores that are based on their credit records. Experian Boost is a helpful tool for anyone with a low or no credit score, and especially useful if you’ve filed for bankruptcy.

Takeaway: To improve your chances of getting approved for a line of credit from a lender, try to add positive accounts and current bills to your credit history. Not everything qualifies, and some bills are harder to add than others, but it can help you later on when you’re applying for new credit.

5. Try a secured credit card

secured credit card can help people rebuild credit after declaring bankruptcy. Secured cards have a credit limit based on cash you deposit as collateral. If you put $250 down, for example, that’s your limit (not including any fees). By asking for collateral, banks mitigate their risk in lending to folks with poor credit histories. In return, they report your on-time monthly payments to the credit bureaus to help you rebuild your credit. If you fail to make payments, they simply keep your deposit. Once you make on-time payments for an extended period of time, the credit issuer may offer to upgrade you to a traditional unsecured credit card.

How to get started: To find a good secured credit card, look for one with low fees and flexible repayment terms. Start by researching options with your local credit union or compare options online at sites such as Bankrate.

Takeaway: When you are ready to use credit again following a bankruptcy, a secured credit card can be a good way to start.

6. Avoid scams

While there are some legitimate companies that can help you rebuild your credit as quickly as possible, many can’t do much more for you than you can do yourself. Companies that request an up-front fee or guarantee 100 percent success in rebuilding your credit, for example, may be trying to take advantage of consumers who are desperate to increase their credit scores. If you suspect a possible fraud on your accounts, contact consumer watchdog agencies such as the Federal Trade Commission or the Consumer Financial Protection Bureau.

How to get started: One way to keep your finances safe is to read up on The Federal Trade Commission’s guide on how to avoid a scam.

Takeaway: Scammers and fraudulent companies may try to take advantage of individuals in a vulnerable financial situation. Be cautious about who you share your personal information with. And if it sounds too good to be true, it probably is.

7. Monitor your credit regularly

It’s never been easier to monitor your credit reports for free online. You can go the traditional route, downloading a free copy of your report from each credit bureau once per year. Or, you can take advantage of free credit monitoring online tools such as Bankrate or set up fraud alerts through your banks.

How to get started: Check out to get a free copy of your credit report from each bureau annually (weekly reports are free until April 20, 2022). Or, research credit monitoring tools on Bankrate. If you spot any errors or fraudulent activity, dispute the information right away.

The takeaway: Watch your progress as you rebuild your credit by keeping tabs on your credit history

Next steps

Recovering from bankruptcy is entirely possible with careful budgeting that tracks your expenses and income. Adopting a few new habits — such as following a cash-only lifestyle — can prevent you from overspending and getting into trouble again.

Secured credit cards are another tool as you seek to rebuild after a bankruptcy. These cards, secured by your own cash deposit, take away the ability to overspend. But remember, the idea is to focus on rebuilding your credit score through responsible use and consistent on-time payments. A secured credit card should not be used to fund impulse purchases.

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