Building Wealth After Bankruptcy: What to Do First

You filed bankruptcy. The discharge came through. Creditors stopped calling. Now you're staring at a balance sheet that's mostly zeros—no debt, but no savings either. What's your next move?

Bankruptcy gives you a clean slate, but it doesn't hand you a roadmap. Most people who file Chapter 7 or Chapter 13 walk away with little to no savings and a credit score in the 500s. The question isn't whether you can build wealth after bankruptcy. You can. The question is: what order should you do things in?

The answer matters. Do the wrong thing first,say, opening a retirement account when you have no emergency fund,and you'll end up right back in debt when your car breaks down. Do the right things in sequence, and you can hit six figures in net worth within a decade. Here's the plan.

Step One: Stop Bleeding Money on Fees and Interest

Before you build anything, plug the leaks. Post-bankruptcy, you're a high-risk customer in the eyes of banks and lenders. That means:

• Higher insurance premiums (car, renters, sometimes even health)
• Security deposits for utilities
• Subprime credit card offers with annual fees and predatory terms
• Payday loan traps if you're not careful

Your first job is to avoid these. Open a basic checking account at a credit union or online bank with no monthly fees. Get a secured credit card,one that reports to all three bureaus and has no annual fee. Use it for gas or groceries, pay it off in full every month, and ignore every other credit offer that lands in your mailbox.

You're not trying to optimize returns yet. You're trying to stop losing money to fees and interest. If you're paying $35 overdraft charges or $99 annual fees on a secured card, you're sabotaging yourself before you start.

Step Two: Save $1,000 as Fast as Possible

Your first financial goal post-bankruptcy is simple: get $1,000 in a savings account. Not $5,000, not six months of expenses. Just $1,000.

Why that number? Because $1,000 covers 80% of the emergencies that send people back into debt: a flat tire, a broken phone, an unexpected vet bill, a minor car repair. It won't cover everything, but it covers most things. And psychologically, having four digits in your savings account rewires how you think about money.

How fast can you save it? If you can set aside $100 a month, you'll hit $1,000 in ten months. If you can hustle,sell stuff, pick up extra shifts, cut discretionary spending hard for a few months,you can do it in three. Once you hit $1,000, stop. Move to the next step.

Step Three: Rebuild Your Credit Score to 650+

Your bankruptcy will stay on your credit report for 7-10 years, but your score doesn't have to stay in the basement that long. Most people who file Chapter 7 see their scores hit 500-550 right after discharge. Within 12-24 months of smart behavior, you can get back to 650 or higher. That's the threshold where you start getting decent loan terms.

Here's how:

• Keep your secured credit card balance under 10% of the limit. If you have a $300 limit, never let the balance go above $30 before paying it off.
• Set up autopay for one recurring bill. Netflix, Spotify, your phone,whatever. Charge it, autopay it in full. Never miss a payment.
• Become an authorized user on someone else's card. If you have a parent or sibling with a long credit history and low utilization, ask them to add you as an authorized user. Their payment history can boost your score. (You don't even need the physical card.)

Check your score every month with Credit Karma or a similar free service. Watch it climb. Once you hit 650, you're back in the game for normal financial products.

If you're not sure whether bankruptcy is the right move for you, take our bankruptcy screener to see if you qualify and what relief you might get.

Step Four: Build Your Emergency Fund to Three Months of Expenses

Now you're ready for the real emergency fund. Calculate your bare-bones monthly expenses,rent, utilities, groceries, insurance, minimum debt payments if you have any. Multiply by three. That's your target.

For most people, this is $4,000-$8,000. It sounds like a lot. It is a lot. But here's the thing: this fund is what keeps you from ever needing bankruptcy again.

Put it in a high-yield savings account. As of 2025, you can find accounts paying 4-5% APY with no fees. Don't invest this money in stocks. You need it liquid and stable. If the market drops 20% the same week your transmission dies, you're screwed.

How long will this take? If you're saving $200 a month, figure 20-40 months depending on your target. That's 1.5-3 years. Yes, it's slow. No, you can't skip it. This is the foundation.

What If You Can't Save That Much Right Now?

If $200 a month sounds impossible, start with $50. The habit matters more than the amount early on. But if you're truly stuck,if your income barely covers expenses even with bankruptcy behind you,you might need to address the income side. That's a longer conversation, but it usually means: get a roommate, get a second job, get a better job, or get government benefits you're entitled to (SNAP, Medicaid, EITC).

Step Five: Start Investing 10-15% of Your Income

Once you have three months of expenses saved, you can start building wealth. Not before. If you invest before you have an emergency fund, you'll just liquidate those investments the first time life punches you in the face.

Here's where to put your money, in order:

1. Employer 401(k) Match (If You Have One)

If your employer offers a 401(k) match, contribute enough to get the full match. If they match 50% of the first 6% you contribute, put in 6%. That's an instant 50% return. You will not find a better deal anywhere.

Don't overthink the investment choices. Pick a target-date fund that matches when you'll retire (e.g., Target 2055 if you're in your 30s). The fund does the work for you.

2. Roth IRA (Max It Out If Possible)

After you get the match, open a Roth IRA. As of 2025, you can contribute up to $7,000 a year ($8,000 if you're 50+). The money grows tax-free and you can withdraw it tax-free in retirement.

Why Roth over traditional IRA? Two reasons. First, you're probably in a low tax bracket right now, so the upfront deduction of a traditional IRA doesn't help much. Second, Roth withdrawals are tax-free, which gives you flexibility later.

Open your Roth IRA at Vanguard, Fidelity, or Schwab. Put everything in a target-date fund or a simple three-fund portfolio (total US stock market, total international stock market, total bond market). Set up automatic contributions. Forget about it.

3. Back to Your 401(k) If You Have Money Left Over

If you're saving more than 10-15% of your income,say you're putting away 20%,go back and increase your 401(k) contributions beyond the match. The 2025 limit is $23,000 ($30,500 if you're 50+).

Most people post-bankruptcy won't hit these limits for years. That's fine. Start where you are.

Step Six: Pay Off Any Remaining Debt

If you still have debt after bankruptcy,student loans, a car loan, maybe a mortgage if you reaffirmed it,tackle it now. Not before your emergency fund. Not before your retirement savings. Now.

Why wait? Because debt payoff is mathematically inferior to investing when the interest rate is low. If your car loan is at 5% and the stock market averages 10%, you're better off investing and making minimum payments on the car. But psychologically, debt drags on you. Once your foundation is solid, kill it.

Use the avalanche method: highest interest rate first. Throw every extra dollar at the highest-rate debt while making minimums on the rest. When that's gone, roll the payment into the next one. Rinse and repeat.

Need help understanding your options for dealing with debt before bankruptcy? Learn how bankruptcy works and what debts it can wipe out.

What Wealth Looks Like Five Years After Bankruptcy

Let's say you file Chapter 7 in 2025. Here's what a realistic wealth-building trajectory looks like if you follow this plan:

• Year 1: Save $1,000 emergency fund. Get secured credit card. Rebuild credit to 600.
• Year 2: Credit score hits 650. Save three-month emergency fund ($6,000 total).
• Year 3: Start contributing 10% to retirement. Build $7,000 in retirement accounts.
• Year 4: Max out Roth IRA ($7,000/year). Retirement accounts hit $15,000.
• Year 5: Pay off remaining debts. Net worth: $30,000-$50,000 depending on income.

That's not a fantasy scenario. That's what happens when you execute the basics consistently. No lottery tickets. No crypto. No get-rich-quick schemes. Just boring, methodical wealth building.

The Biggest Mistake People Make Post-Bankruptcy

You know what it is? They treat bankruptcy like a moral failure instead of a financial tool.

Bankruptcy is not a character flaw. It's a legal process that gives you relief when debt becomes unmanageable. You used the system as intended. Now stop apologizing for it.

The second biggest mistake? Refusing to use credit ever again. You need credit to build wealth in America. You need it to get a mortgage, to rent an apartment, to get reasonable insurance rates. The trick is to use credit as a tool, not a crutch. Charge small amounts. Pay them off in full. Never carry a balance. Build your score back up.

If you treat bankruptcy as a fresh start,which is what it is,you'll be fine. If you treat it as a shameful secret, you'll sabotage yourself.

When to Get Professional Help

You don't need a financial advisor right after bankruptcy. You need a plan and the discipline to execute it. But there are two situations where paying for advice makes sense:

• You inherited money or got a windfall. If you suddenly have $50,000+ to deploy, talk to a fee-only financial planner (not someone who earns commissions). They'll help you optimize taxes and investment choices.
• You're stuck and don't know why. If you've been following the plan for two years and your savings account is still at zero, you might have a budgeting problem or an income problem. A financial coach can help you diagnose it.

Otherwise, the plan is simple. Emergency fund. Credit. Retirement. Debt. Repeat. You don't need to pay someone to tell you that.