How to Budget After Bankruptcy

by Robert Lee

People emerging from bankruptcy must budget carefully to avoid developing new financial problems. That defeats the primary purposes of bankruptcy, including helping people eliminate or reorganize excessive debt while creating a fresh start. Chapter 7 bankruptcy eliminates all unsecured debt, such as credit cards, in just three or four months. Chapter 13 bankruptcy, which lasts three to five years, also eliminates all unsecured debt remaining at the end of the bankruptcy.

1. Complete the mandatory post-bankruptcy counseling session required by the federal bankruptcy courts. See your bankruptcy trustee for more information. Trained credit counselors certified by the federal government offer extensive information during the sessions -- including tips on budgeting. It's one of the final steps in completing bankruptcy.

2. Rebuild your credit with one or two cards at most and throw away all other credit offers. The bankruptcy court will update your credit reports to reflect the completion of your bankruptcy and elimination of your unsecured debts, prompting some lenders to send you new credit offers, especially for high-interest credit cards. It's important to establish new credit, but the success of your new budget may hinge on your ability to avoid new debt. Keep balances to no more than 10 percent of your credit limit.That means you should never have a balance of more than $30 on a credit card with a $300 limit, for example.

3. Purchase a cheap used car with cash -- if you need new transportation. Following your bankruptcy new-car loans will probably come with a high interest rate. Learn to appreciate used cards that are paid for and save some money each month for repairs. A new transmission or even a new motor paid with cash is often a better option than a car loan.

4. Maintain living expenses at roughly the same level as during your bankruptcy, if your budget was managed by the court as part of a Chapter 13 bankruptcy. Chapter 13 participants who successfully complete bankruptcy manage to survive for up to five years with a bankruptcy trustee monitoring their spending. A natural temptation is to start splurging again. Allow yourself some treats, but keeping overall spending low will help avoid new debt.


  • MSN Money recommends spending no more than 50 percent of your take home pay on necessities such as housing, transportation and health insurance. Spend another 30 percent on luxuries such as cable television, high-speed Internet and luxuries. Save the remaining 20 percent.
  • A trained credit counselor can review your current spending and make suggestions on what to cut, if necessary. If you need help finding a counselor, contact a nonprofit organization such as the United Way, for a referral.
  • Establishing a line item in your budget for car rentals can provide another alternative to buying an expensive new car. Having several hundred dollars a year budgeted for car rentals allows you flexibility when you need a nice, reliable car for a driving vacation or business reasons.


  • Avoid treating post-bankruptcy counseling as a formality. The benefits are potentially great for debtors who ask good questions about budgeting, lifestyle, credit and other post-bankruptcy issues. Contact your counselor for a followup session if you have already completed your bankruptcy and still need help.

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