Title IV of the Higher Education Act of 1965 authorized the federal government to provide various types of financial aid to higher education students. While a bankruptcy on your credit report won't prevent you from being able to get most types of Title IV aid, discharging student loans in bankruptcy is another matter. If you have difficulty managing funds, or are concerned about being able to repay loans, student loans may not be your best financial aid option.
Bankruptcy
Bankruptcy is a legal process that offers relief from debt. If you have more debt than you can manage, you can ask a bankruptcy court to order your creditors to stop debt collection activities and discharge all or part of your debt. Consumers usually file for one of two types of bankruptcy. In Chapter 7, you sell off your assets in order to repay your creditors, and the court cancels the rest of your debt. In a Chapter 13, you repay your creditors at least some of what you owe them over three to five years. The court discharges any remaining debt after you complete your plan. While most debts are dischargeable in bankruptcy, some are either nondischargeable or very difficult to discharge.
Federal Financial Aid
The federal government guarantees some types of student loans, including Stafford and Perkins loans. Unlike with many other types of loans, your credit history isn't considered when you take out one of these loans. A bankruptcy on your credit report won't prevent you from receiving student aid through the Stafford or Perkins loans programs. However, the federal Parent PLUS Loan Program does consider a parent's credit history.
Private Student Loans
If you can't borrow enough to pay for your education through federal loans, private student loans are an option. However, private student loan lenders do consider your credit history when evaluating your loan application. A recent bankruptcy could prevent you from being approved for these loans. In such cases, you can either work to improve your credit and then reapply in a year or more, or you could ask someone to cosign your loan.
Student Loans and Bankruptcy
Student loans of any type are hard to discharge in a bankruptcy. Unless you can prove that paying off your loans will prove an undue burden, the your student loan debt balance continues after bankruptcy. Talk to your lawyer to find out whether he thinks you may have a chance of receiving a discharge of your student loans. If he does, he must file a separate petition asking the court to determine whether you meet the standard for student loan discharge.
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