Cheapest way to fix a backyard with bare spots and rock.
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it would be to your benefit to use a professional
You definitely need to have it all turned over, leveled out and replant the grass. Depending on how big the stones are, you could create rock gardens around the trees and put in shade loving perennials. Use garden blocks to hold them in.
This may be an opportunity to start over and plan how you'll want to use your backyard in the future. You could create a few different areas, such as a vegetable garden area, a couple of sitting areas and maybe an area to bbq. Draw your ideas on a piece of paper and think through how you'd like to have it. I'd plant the non-grassy areas with perennial plants that will come back year after year and spread and eventually you'll have the backyard of your dreams!
I think I would rake and pick the rocks, then add a layer of top soil to level the yard, then add grass seed and water.
I would go with the rock removal, walking on uneven ground would become a challenge after awhile, even if you plant grass it could be a mine field of where is the rock when you go to mow, plus pits of water after a rain.
Or maybe raised bed gardens over rocky areas, covering them up.
Call in a Garden designer and get some advice on the best way to go. Or just call in a Landscape Gardener and ask him to level and lay you a lawn.
Your could build platform walkways around the perimeter with rock gardens and shrubs that have been marked down by garden centers. Look online to see what plants function well in your area. Join a Freecycle or Facebook group in your area and trade rocks for plants, on a you dig it yourself basis. Also, could place a pond/fountain among the rocks...see home centers for those parts.