10 Mistakes to Avoid After You File For Bankruptcy
Written by
Ana Gotter
Edited by
Emily Gadd
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Filing for bankruptcy can provide relief from overwhelming debt, but it can also come with significant restrictions and responsibilities. Knowing what you can’t do during or after filing is crucial to start rebuilding your financial life.
5 Things to Avoid During the Bankruptcy Proceedings
Bankruptcy can be a complex legal process. After filing, it’s essential to make sure that you don’t make any mistakes that could accidentally derail the success of your case.
1. Failing to Complete Your Credit Education
Completing mandatory credit counseling and financial management courses isn’t optional. You must take a credit counseling course before filing for bankruptcy, and you need to take a debt education class before your debt is discharged.
If you skip these requirements, the court will likely dismiss your case entirely or refuse to discharge your debts. These courses are designed to help you avoid financial problems in the future, so take them seriously.
2. Transferring Property to Friends or Family
Moving assets to friends or family immediately before or during bankruptcy is a serious mistake. This can be seen as fraudulent and may lead to your case being dismissed or even result in criminal charges.
The court expects full disclosure of all your assets, and trustees can look back several years at your financial transactions and can even take action to recover assets if the transfer occurred within two years before filing.
3. Missing or Ignoring Court Correspondence
The bankruptcy process involves multiple deadlines, hearings and document requests. Missing any of these or ignoring correspondence from the court or your trustee can result in your case being dismissed — even if it was a simple oversight.
Set reminders and respond promptly to all communications related to your case.
4. Continuing to Make Poor Financial Decisions
Filing for bankruptcy doesn’t mean you can spend recklessly as you wait for debt to potentially be discharged. Doing so can actually be seen as an attempt of fraud, as you’re incurring debt with no intention of paying it back.
Courts monitor your financial behavior during proceedings. Live within your means and focus on essential expenses only.
5. Applying for New Debt or Loans
Taking on new debt during bankruptcy proceedings is typically prohibited without court approval. Lenders will ask if you have a pending bankruptcy. Being dishonest on these applications can, once again, constitute fraud.
Wait until your bankruptcy is discharged before seeking new credit, though be aware that your credit score will be significantly impacted by a bankruptcy and it may be hard to obtain favorable credit immediately following a bankruptcy.
5 Things to Avoid After the Bankruptcy Proceedings Are Over
Once your bankruptcy is discharged, you enter the rebuilding phase of your financial journey. This period is crucial for establishing better habits and avoiding the same mistakes that led to bankruptcy in the first place.
1. Failing to Keep Up With Your Repayment Plan
If you filed Chapter 13 bankruptcy, sticking to your court-approved repayment plan is mandatory.
Missing payments could cause the court to dismiss your case, leaving you responsible for all your original debt amounts plus additional interest and fees.
The easiest solution is to set up automatic payments if possible to ensure you never miss a deadline. Set aside money for the payments in advance when possible. Some people even create an account with several months worth of payments saved exclusively for this purpose, so there’s no risk of missing a payment.
2. Making Late or Incomplete Payments
Your payment history makes up 35% of your credit score. Even after bankruptcy, making late payments on remaining obligations will further damage your credit and delay your financial recovery.
Every on-time payment helps rebuild your credit profile, so prioritize paying bills by their due dates.
3. Charging Too Much to Credit Cards
It’s easy to feel relieved at the debt that’s gone after bankruptcy, but this isn’t the time to start accumulating new debt. Many people fall into this trap and can end up in financial trouble again — but you’ll have to wait several years before you even have the option to file for bankruptcy again.
Start with a secured credit card if necessary, and never charge more than you can pay off each month. Set a strict budget and stick to it.
4. Forgetting to Track Discharged Debt
There’s a chance your discharged debt can be incorrectly marked as due. Sometimes, collectors try to collect on discharged debts years later.
Keep copies of your bankruptcy discharge papers. That way you can prove the debt was legally eliminated through your bankruptcy case.
5. Immediately Applying for New Loans or Debt
While you may receive credit offers soon after bankruptcy, these typically come with extremely high interest rates and fees. Some, like payday loans, can even be predatory, having such high interest rates that they can be financially devastating.
Rushing into new debt arrangements can start the cycle of financial problems all over again. Focus on saving money and rebuilding your credit score gradually before taking on significant new financial obligations.
Rebuilding Your Financial Life After Bankruptcy
Bankruptcy gives you a chance to reset your financial life, but success depends on changing the habits that may have led to the problem.
Create and stick to a realistic budget, build an emergency fund and regularly check your credit report for errors. With discipline and patience, you can rebuild your credit and financial stability within a few years after bankruptcy.
FAQ
Bankruptcy can be a financial lifeline, but it can also be stressful and scary. Here’s some additional information on what you can expect after filing for bankruptcy.- What can you lose in a bankruptcy?
- In bankruptcies, you may be required to liquidate some assets in order to repay debt and have remaining debt discharged. This may include additional vehicles, expensive artwork and other valuable assets. In many cases, however, people do not lose their homes or primary vehicles.
- What cannot be wiped out by a bankruptcy?
- Some debt and financial requirements like alimony, child support, tax debts, fraud-related debt, and some private student loans won’t be erased by bankruptcies.
- Do you ever recover from a bankruptcy?
- Yes, you can absolutely recover from bankruptcies. It takes either seven or 10 years to come off your credit report. As long as you’ve made smart financial decisions during that time, you can end the period stronger than when you entered it.
- What goes away when you file bankruptcy?
- Depending on the type of bankruptcy you file for, some debt may be discharged, though you may have to liquidate some assets for this to happen. Creditors will also stop following up, as debt has either been discharged or assigned to a payment plan.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Nolo "What happens if you transfer property out of your name before bankruptcy?"
- United States Courts "Credit Counseling and Debtor Education Courses"
- AllLaw "What Happens If You Don't Make Your Chapter 13 Plan Payments?"
- U.S. Department of Justice "879. Bankruptcy Fraud—18 U.S.C. § 157"
