If you've recently made the decision to file for Chapter 7 bankruptcy protection, you may be wondering what you can do to rebuild your portfolio going forward. These decisions become even more crucial when you're faced with the prospect of taking out parent loans for your child's education -- or plan on going back to school yourself. How will filing for bankruptcy impact your ability to take out educational loans? Read on to learn more about the treatment of bankruptcy by federally-backed and private student lenders.
Can you take out student loans after filing for Chapter 7 bankruptcy?
In most cases, you should be able to qualify for many federal student loans just as easily as someone with stellar credit. Because federal student loans are non-dischargeable in bankruptcy and subject to strict limits based on the student's class year and the total amount borrowed, lenders are less worried about the borrower's ability to default on these loans than on other types of loans (like mortgages or auto loans).
Private loans can be a different matter. Although these loans are also unable to be discharged through the bankruptcy process, each private lender has its own specific criteria governing loan eligibility. In some cases, you may be able to take out the same amount of loans as someone without a bankruptcy on their credit report, but may pay a higher interest rate or have stricter credit terms. In other cases, you may be completely prohibited from taking out loans until your credit score has reached a certain level or a number of years have passed since your bankruptcy filing.
What if you file for bankruptcy in the middle of paying for an education?
Fortunately, filing for bankruptcy after already taking out some student loans (but needing additional loans to complete your or your child's education) should have no affect on your ability to continue to qualify for Federal Family Education Loan Program (FFELP) student loans. In addition to these specific federal loans, you may be able to receive Perkins loans and federal Title IV-D grants or loans at any time during the bankruptcy process.
However, other types of federal loans--particularly the PLUS loans taken out by parents or graduate students--may be harder to obtain after your credit score has taken a hit. But by adding on a cosigner with good credit or instead taking out unsubsidized Stafford loans, you may be able to fill in any gaps in aid. To learn more about bankruptcy, contact a bankruptcy attorney,Share
9 March 2015
Filing for bankruptcy has a tendency to make people feel ashamed and stressed out, and can turn into a big source of depression if not handled properly. As a counselor for couples and families, I have worked with various families throughout the years who have had to go through bankruptcy. And during this time, I have seen firsthand how, with the right mindset, going through bankruptcy can make people stronger in their financial lives and careers. I started this blog to provide information about the right things to do and the things that should be avoided while going through bankruptcy to minimize stress and maximize potential once the process is over. If you have any questions or concerns, hopefully they can be addressed on these pages.