Although declaring bankruptcy won’t prevent you from applying for student loans, it might make it more difficult to be approved for PLUS Loans and private student loans without a cosigner.
You can discharge old debts through Chapter 7 or Chapter 13 bankruptcy without jeopardizing your eligibility for new federal student loans to pay for college. But if you’re thinking about taking out a private loan to help with expenses, returning to graduate school, or borrowing loans for a child, you’ll probably need a cosigner.
Before approving the majority of loans, the Department of Education does not check borrowers’ credit ratings. Congress feels that every American, even those with poor credit, deserves the opportunity to attend college. However, for PLUS loans, it does check credit reports to see if applicants have recently filed for bankruptcy, had their wages garnished, or fallen behind on any other debts. They can still apply for one of these loans even if they have a poor credit history, but a cosigner will be required.
Similar to public lenders, private lenders seek out applicants with stable incomes and good credit. If you recently filed for bankruptcy, it will be extremely difficult for you to get a private student loan without the assistance of a family member, friend, or other close relative who is willing to assume responsibility for the debt should you be unable to make the monthly payments.
How bankruptcy affects student loans
Your current student loans may be impacted by a bankruptcy filing, and you may be prohibited from taking out new ones. First, bankruptcy puts current loans into forbearance. However, these loans are typically not dischargeable in bankruptcy. Second, while your bankruptcy case is pending, you can obtain student loans. I’ll explain both scenarios in more detail here.
Your current student loans are automatically forbeared when you declare bankruptcy. Although there is no bill due at that time, interest will still accrue. Additionally, you’ll halt the implementation of loan forgiveness plans like the Income-Driven Repayment Plan Forgiveness and Public Service Loan Forgiveness.
At the conclusion of the bankruptcy proceedings, the court will issue a discharge order that will cancel out credit card debt, medical expenses, personal loans, and other unsecured debts. But you’ll still be stuck with your student loans.
This is due to the fact that student loan debt is not dischargeable in any type of bankruptcy case. You must establish in an adversary proceeding—a separate procedure—that repaying your student loans would put an undue burden on you and your dependents.
Most student loan borrowers skip out on offering this proof. The process is expensive, lengthy, and frequently incredibly frustrating, so who can blame them? Your lenders, the judge, and everyone else will need to know everything about your personal and financial situation. You will also be required to pass a test, typically the Brunner Test, proving that you have made a good faith effort to pay back your debts but have been unable to do so while maintaining a minimum standard of living.
Although it can be challenging to eliminate your student loans through bankruptcy, the possible debt relief may be well worth the effort. Consult your bankruptcy lawyer or a student loan bankruptcy attorney for assistance.
You can get new federal student loans after filing bankruptcy. The Bankruptcy Code prohibits the U.S. Department of Education from blocking bankruptcy filers from getting federal student aid in the form of grants and loans. That means you can’t be denied financial aid simply because you’ve filed bankruptcy before. It also means you can get federal loans while in Chapter 7 bankruptcy (or a 13, for that matter).
Banks, refinancing lenders, and other online financial institutions are exempt from this bankruptcy law. If private student loan lenders think you’re a credit risk, they can (and will) reject your application or require a cosigner.
Getting student loans after a bankruptcy discharge
You can get new federal student loans before or after your bankruptcy case ends by submitting a FAFSA application on StudentAid.gov. As I shared above, the federal government won’t deny your application because you filed bankruptcy. But you may need an endorser or cosigner if you’re borrowing student loans for a child or to pay for graduate school.
One of the eligibility requirements to get a PLUS Loan is that you can’t have an adverse credit history. The Education Department considers you to have such a history if your credit report shows that in the past 5 years, you’ve fallen behind on student loan payments, had a repossession or eviction, or discharged debts in bankruptcy.
You can apply for student loans both before and after filing for bankruptcy, but depending on the type of loan you’re applying for, you might need assistance from a friend or family member.
If you already have loans, they will remain with you unless you file a lawsuit asking a bankruptcy court to release the debt.
FAQ
Can I still get student loans if I file Chapter 7?
However, the borrower’s loan servicer ultimately appealed the potential watershed decision. When you file for Chapter 7, the following occurs regarding your student loans: Lenders stop pestering you for money. An automatic stay is issued following the filing of your Chapter 7 bankruptcy petition, just like it is after a Chapter 13 filing.
How does Chapter 7 affect student loans?
You will still owe your student loans after filing for Chapter 7 bankruptcy if you are unable to demonstrate that doing so would put an undue hardship on you. However, Chapter 13 bankruptcy provides other help.
How long does it take to get a loan after filing Chapter 7?
FHA and VA mortgage regulations for Chapter 7 bankruptcy stipulate a two-year waiting period following the bankruptcy’s discharge. Not when you filed, but at that point, the court released you from your debts. A Chapter 7 discharge usually takes 6-8 months after filing.
What can you not do after filing Chapter 7?
- Lying about Your Assets. …
- Not Consulting an Attorney. …
- Giving Assets (Or Payments) To Family Members. …
- Running Up Credit Card Debt. …
- Taking on New Debt. …
- Raiding The 401(k) …
- Transferring Property to Family or Friends. …
- Not Doing Your Research.