On this page
What's next
Earn a high-yield savings rate with JG Wentworth Debt Relief
What You Can’t Do After Chapter 7 Bankruptcy
by
JG Wentworth
•
August 4, 2025
•
10 min
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
Filing for Chapter 7 bankruptcy can provide much-needed relief from overwhelming debt, but it also comes with significant restrictions and limitations that can affect your financial life for years to come. Understanding these constraints is crucial for anyone considering bankruptcy or navigating life after discharge. If you’re considering filing for Chapter 7, let’s take a closer look at the various limitations you’ll face afterward…
Understanding Chapter 7
Chapter 7 bankruptcy, often called “liquidation bankruptcy,” is designed to discharge most unsecured debts while allowing debtors to keep certain exempt property. The process typically takes three to six months from filing to discharge, but the effects can last much longer. While Chapter 7 can eliminate many debts, it creates a framework of restrictions that govern your financial behavior during and after the process.
Obtaining new credit
- One of the most immediate and lasting effects of Chapter 7 bankruptcy is the severe limitation on your ability to obtain new credit. The bankruptcy will remain on your credit report for ten years from the filing date, making it extremely difficult to qualify for traditional loans or credit cards during this period.
- Most conventional lenders will automatically deny applications from individuals with recent bankruptcies on their credit reports. Even when credit is available, it typically comes with extremely high interest rates, substantial fees, and restrictive terms. Secured credit cards, where you deposit cash as collateral, may be among the few credit options available in the immediate aftermath of bankruptcy.
Mortgage and home loans
- Obtaining a mortgage after Chapter 7 bankruptcy presents significant challenges. Most conventional mortgage lenders require a waiting period of four years from the discharge date before considering applications. FHA loans may be available after two years, while VA loans might be accessible after two years for eligible veterans.
- Even when you become eligible for a mortgage, you’ll likely face higher interest rates, larger down payment requirements, and more stringent documentation requirements. The overall cost of homeownership can be substantially higher due to these restrictions.
Auto loans and vehicle financing
- While auto loans may be more accessible than mortgages after bankruptcy, they come with significant limitations. Subprime lenders may offer financing, but typically at interest rates that can exceed 20% annually. The terms are often unfavorable, with shorter repayment periods and higher monthly payments.
- Many dealerships that advertise “bankruptcy-friendly” financing may engage in predatory lending practices, offering vehicles at inflated prices with unfavorable loan terms. The selection of vehicles may also be limited to older, higher-mileage options.
Professional and employment limitations
Chapter 7 bankruptcy can significantly impact your ability to work in certain licensed professions. Many professional licensing boards consider bankruptcy when evaluating applications for new licenses or renewals of existing ones. This can affect careers in:
- Financial Services: Securities licenses, insurance licenses, and banking-related positions often have strict requirements regarding financial responsibility. A bankruptcy filing may disqualify you from obtaining or maintaining these licenses.
- Legal profession: While bankruptcy alone typically doesn’t prevent someone from practicing law, it can trigger character and fitness reviews by state bar associations. Some states may impose restrictions or require additional disclosures.
- Healthcare professions: Certain healthcare licenses may be affected, particularly those involving financial responsibilities or access to controlled substances.
- Real estate: Real estate licenses often require demonstrations of financial responsibility, and bankruptcy may trigger review processes or temporary suspensions.
Security clearances
- Federal security clearances are often revoked or denied following bankruptcy filings. Financial difficulties are considered a security risk because they may make individuals susceptible to bribery or other forms of compromise. This can severely limit employment opportunities in defense contracting, government positions, and related fields.
- The security clearance review process considers not just the bankruptcy itself, but the circumstances that led to it and the individual’s financial behavior afterward. Recovery may be possible over time, but it often requires demonstrating sustained financial responsibility for several years.
Employment background checks
While the Fair Credit Reporting Act limits how employers can use bankruptcy information in hiring decisions, many positions involving financial responsibilities may still be affected. Employers in banking, finance, accounting, and positions requiring bonding may be reluctant to hire individuals with recent bankruptcies.
Rental applications
- Finding rental housing after Chapter 7 bankruptcy can be challenging. Most landlords conduct credit checks as part of the application process, and a bankruptcy filing is often viewed as a significant red flag. Many landlords have policies that automatically disqualify applicants with bankruptcies, regardless of other qualifications.
- When rental options are available, they often require additional security deposits, co-signers, or advance rent payments. The selection of available properties may be limited to those in less desirable areas or with landlords who specialize in renting to individuals with credit problems.
Take your next step towards being debt-free
"*" indicates required fields
Homeownership challenges beyond mortgages
- Even if you eventually qualify for a mortgage, homeownership after bankruptcy presents additional challenges. Homeowners insurance may be more expensive or difficult to obtain. Some insurance companies view bankruptcy as an indicator of higher risk and may charge premium rates or require larger deductibles.
- Property insurance claims may also face additional scrutiny, as insurers may be concerned about potential fraud from individuals with financial difficulties.
Traditional banking services
- While basic checking and savings accounts are generally available after bankruptcy, you may face limitations with traditional banks. Some banks may require secured accounts or impose minimum balance requirements. Overdraft protection and other banking conveniences may be unavailable or come with higher fees.
- ChexSystems, a banking information network, may flag individuals with bankruptcy histories, making it difficult to open accounts at certain institutions. This can force you to rely on credit unions, community banks, or alternative financial services that may be more expensive.
Investment and retirement accounts
- Opening new investment accounts after bankruptcy can be challenging. Brokerage firms often have policies restricting accounts for individuals with recent bankruptcies. Even when accounts are available, margin trading and other advanced investment features are typically prohibited.
- However, it’s important to note that most retirement accounts, including 401(k)s and IRAs, are protected during bankruptcy proceedings and can continue to be funded after discharge.
Starting new businesses
- While bankruptcy doesn’t legally prohibit you from starting a new business, it creates significant practical obstacles. Obtaining business credit, securing loans, or attracting investors becomes extremely difficult with a recent bankruptcy on your record.
- Business banking services may be limited, and you may be required to provide personal guarantees for business obligations, which can create additional personal liability. Vendor credit terms may be unavailable, requiring cash payments for inventory and supplies.
Professional liability and bonding
Many businesses require professional liability insurance or bonding, which may be difficult or expensive to obtain after bankruptcy. This can limit your ability to compete for certain contracts or operate in regulated industries.
Legal and procedural restrictions
- Filing subsequent bankruptcies: Chapter 7 bankruptcy creates specific limitations on your ability to file future bankruptcy cases. You cannot file another Chapter 7 case and receive a discharge for eight years from the filing date of your previous Chapter 7 case. If you need to file a Chapter 13 bankruptcy, you must wait four years from the filing date of your Chapter 7 case.
- Reaffirmation agreement obligations: If you signed reaffirmation agreements during your Chapter 7 case to keep certain secured property like vehicles or homes, you remain fully liable for these debts. You cannot later discharge these reaffirmed debts in a subsequent bankruptcy filing, and defaulting on reaffirmed debts can result in repossession or foreclosure.
- Fraudulent transfer scrutiny: After bankruptcy, any significant financial transactions may face scrutiny for potential fraudulent transfer issues. Large purchases, gifts, or asset transfers within several years of filing may be examined by creditors or trustees, potentially leading to legal complications.
Insurance and benefits restrictions
- Life and disability insurance: Obtaining life insurance after bankruptcy can be more expensive and may require additional underwriting. Some insurers view bankruptcy as a risk factor and may charge higher premiums or impose waiting periods before coverage becomes effective. Disability insurance may also be more difficult to obtain, as insurers may be concerned about the financial stability of applicants with bankruptcy histories.
- Government benefits: While bankruptcy generally doesn’t affect eligibility for most government benefits, it can impact certain programs. For example, if you’re seeking to discharge student loans (which is extremely difficult in bankruptcy), you may face restrictions on future federal student aid eligibility.
Tax and financial reporting implications
- Tax consequences: Discharged debts in Chapter 7 bankruptcy may create taxable income under certain circumstances. The IRS may treat forgiven debt as income, potentially creating new tax obligations. While there are exemptions for insolvency, navigating these tax implications requires careful attention to filing requirements and deadlines.
- Financial reporting requirements: Some employment positions or professional activities may require ongoing financial disclosures. A bankruptcy filing may need to be reported for years after discharge, potentially affecting your ability to serve on corporate boards, obtain certain licenses, or work in positions requiring financial transparency.
Long-term credit rebuilding challenges
- Credit score recovery: While Chapter 7 bankruptcy provides a fresh start by eliminating debts, it devastates your credit score. Scores often drop to the 400-500 range immediately after filing. Rebuilding credit is a slow process that typically takes several years of consistent, responsible financial behavior. The bankruptcy remains on your credit report for ten years, continuing to impact your creditworthiness throughout this period.
- Limited credit building options: Traditional credit building tools may be unavailable after bankruptcy. Secured credit cards with high fees and low limits may be your only option initially. Store credit cards and subprime credit products often come with predatory terms that can trap you in cycles of debt.
The bottom line
Chapter 7 bankruptcy provides valuable debt relief but comes with extensive restrictions that can affect your financial life for years. From credit limitations and employment restrictions to housing challenges and professional licensing issues, the consequences extend far beyond the initial filing.
The key to success after Chapter 7 bankruptcy lies in accepting these limitations, working within their constraints, and focusing on the gradual rebuilding of your financial reputation. With patience, discipline, and proper guidance, you can eventually overcome most of these restrictions and achieve financial stability once again.
There’s always JG Wentworth…
If you’re struggling with unsecured debt and but don’t feel bankruptcy is your best path forward, we might be able to help. If you owe $10,000 or more there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as 24-60 months
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
About the author
Recommended reading for you
* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that you consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.