Purgatory, 2 Corinthians 5:10, and Protestantism 2 Corinthians 5:10 reads:

(NA28) τοὺς γὰρ πάντας ἡμᾶς φανερωθῆναι δεῖ ἔμπροσθεν τοῦ βήματος τοῦ Χριστοῦ, ἵνα κομίσηται ἕκαστος τὰ διὰ τοῦ σώματος πρὸς ἃ ἔπραξεν, εἴτε ἀγαθὸν εἴτε φαῦλον.
(My translation) For we must all appear before the judgement seat of Christ, that each one may receive for things done in the body, whether good or bad.

How do Protestants interpret &quot;we must all appear before the judgement seat of Christ that each one may receive for [bad things done in the body]?&quot; (not just rewarded for the good). Catholics call this 'Purgatory' (Cf. 1 Cor 3:15).
Regarding Purgatory and Protestantism, I found an article that starts thus:


  According to the Catholic Encyclopedia, Purgatory is “a place or condition of temporal punishment for those who, departing this life in God's grace, are not entirely free from venial faults, or have not fully paid the satisfaction due to their transgressions.” To summarize, in Catholic theology Purgatory is a place that a Christian’s soul goes to after death to be cleansed of the sins that had not been fully satisfied during life.


The article goes on to explain how Protestants view the Catholic teaching on Purgatory.  Here is the link for anyone who wants to know more:  https://www.gotquestions.org/purgatory.html

Regarding 2 Corinthians 5:10, the 2000 edition of my NIV Study Bible makes this comment:


  This accounting has nothing to do with justification, which is credited to the Christian fully and for ever through faith in Christ; instead, it refers to what we have done with our lives as Christians.


This verse is cross referenced to 1 Corinthians 3:10-15.  Verse 13 says that the quality of each man’s work will be revealed with fire.  The NIV Study Bible makes this comment:


  Fire = God’s judgment.  The work of some believers will stand the test while that of others will disappear – emphasising the importance of teaching the pure word of God.


With regard to verse 15, which says that if a believer’s work is burned up, “he will suffer loss; he himself will be saved, but only as one escaping through the flames” the NIV Study Bible comments:


  Perhaps a Greek proverbial phrase, meaning “by a narrow escape”, with one’s work burnt up by the fire of God’s pure justice and judgment.


The Protestant view of the judgment seat of Christ has to do with believers giving an account of their lives to Christ.  No doubt part of this will involve answering for the sins committed while alive.  James 1:12 is a good summary of how we should think about the judgment seat of Christ: “Blessed is the man who perseveres under trial, because when he has stood the test, he will receive the crown of life that God has promised to those who love him.”  That testing happens while the believer lives.

There is no mention of the soul of the believer suffering in some post-death purgatory.  Rather, the refining by fire is an illustration of the process of sanctification while still alive – it is our works that will be tested by fire.

John Wesley taught that the perfection we seek in this life is completed at "the instant of death, the moment before the soul leaves the body" (Brief thoughts on Christian perfection, 1767).  Here is a short extract from a Protestant article on God’s refining fire (1 Corinthians 3:10-15):


  Every believer will give an account of himself, and the Lord will judge the decisions he made—including those concerning issues of conscience. This judgment does not determine salvation, which is by faith alone (Ephesians 2:8-9), but rather is the time when believers must give an account of their lives in service to Christ. Our position in Christ is the “foundation” spoken of in 1 Corinthians 3:11-15. That which we build upon the foundation can be the “gold, silver, and precious stones” of good works in Christ’s name, obedience and fruitfulness—dedicated spiritual service to glorify God and build the church. Or what we build on the foundation may be the “wood, hay and stubble” of worthless, frivolous, shallow activity with no spiritual value. The Judgment Seat of Christ will reveal this.  The gold, silver and precious stones in the lives of believers will survive God’s refining fire (v. 13).  Source: https://www.gotquestions.org/judgment.html


No doubt we shall all be the wiser after we pass from this life into the next, and stand before the judgment seat of Christ to give an answer for the things we did as believers.  I’m already squirming in my seat, knowing full well that I have often failed to point others to Christ and to be worthy of calling myself a Christian.  But I have no fear of any punishment in the after-life, because I believe the promise that “neither death nor life, neither angels nor demons, neither the present nor the future, nor any powers, neither height nor depth, nor anything else in all creation, will be able to separate us from the love of God that is in Christ Jesus our Lord” (Romans 8:37-39).

EDIT for clarification and in response to additional points:

Nowhere can I find a scripture that says believers have to undergo further sanctification after death.  Scripture is clear: 


  “If we walk in the light... the blood of Jesus, his Son, purifies us from ALL sin. If we claim to be without sin, we deceive ourselves and the truth is not in us.  If we confess our sins, he is faithful and just and will forgive us our sins and purify us from ALL unrighteousness” (1 John 1:7-9).


John is not speaking of purification after death.  John is speaking of the here and the now, while the believer lives.  He goes on to remind us that if we sin, Jesus Christ the Righteous One, speaks to the Father in our defence.  HE is the atoning sacrifice for our sins.  It is Jesus, the Son, who has made substitutionary atonement for the sin of the believer, who has satisfied and appeased the righteous wrath of God against sin and sinners.  It is Jesus, the Son, who took upon himself our sins and it is through our faith in what God, in Jesus, has already accomplished that the believer is forgiven. That forgiveness is not partial – that forgiveness is absolute.  When God looks at the believer he sees only the righteousness of Christ.  


  “For I will forgive their wickedness and will remember their sins no more” (Hebrews 8:12).


Hebrews 9:12 goes on to declare that the shed blood of Christ has obtained ETERNAL redemption. Verse 14 says that our consciences are now cleansed from acts that lead to death (sin) so that we may serve the living God.  It does not say our consciences will be cleansed at some future point beyond death.  Verse 15 brings the joyful news that all who have entered into the new covenant they have been set free from the sins committed under the first covenant.

Not a word about not being good enough in this life and having to face cleansing or sanctification or refining by punishment after death.  That’s why it is difficult for Protestants to grasp the Catholic doctrine of Purgatory.  And that’s why I am unable to accept that the believer has to somehow pay for their sins after death because they were not “fully sanctified” while alive.

Regarding 2 Corinthians 5:8, we need to read on to the end of that chapter to understand that “if anyone is in Christ, he is a new creation” (verse 17) and focus on verse 21: “God made him [Christ] who had no sin to be sin for us, so that in him we might become the righteousness of God.”  Finally, Philippians 3:9 reminds the believer that we do not have any righteousness of our own, “but that which is through faith in Christ – the righteousness that comes from God and is by faith.”  It’s a done deal!  We are judged on what we do now, before we go to be with the Lord.  There is no biblical basis for thinking we have to pay for our transgression beyond the grave.  Jesus had done it all.