With a new school year about to begin, I thought it would be a good time to examine the issue of financial aid and bankruptcy. The two questions frequently asked are one, is a student eligible for financial aid after filing for bankruptcy, and two, will filing for bankruptcy discharge one’s student loan.
In regard to the first question, eligibility for financial aid after filing for bankruptcy depends on the type of loan, private or federal. Eligibility for a federal loan should not be affected by your having filed for bankruptcy. Financial aid administrators are not allowed to refer to bankruptcy as an indication that a student would be unwilling to repay a loan. You should be able to acquire additional federal student loans, regardless of any past bankruptcies, if there are no delinquencies or defaults on student loans currently in repayment. However, if you have a federal student loan that is in default and was not included in a bankruptcy, you will not be eligible for further federal student aid until the problem is resolved. A student with a loan in default should contact the current holder of the loan to set up a repayment plan in order to reestablish eligibility for federal student aid. (If you have defaulted on a loan, then discharged it via filing for bankruptcy, it is no longer considered to be in default.)
Eligibility for a private loan after you have filed for bankruptcy is a bit more complex. It depends on the type of bankruptcy filed and the type of loan. If you offer to secure a loan, or if your bankruptcy case involved extenuating circumstances beyond your control—such as medical issues or natural disasters—or if you have a cosigner who has a good credit rating, a lender may be willing to consider making an exception to the general rule of not loaning to a student who has a history of bankruptcy. (Of course, seven to ten years after filing for bankruptcy, you will be eligible for loans, particularly if you have begun the process of improving your credit rating.) If you are applying for a loan, you will be at an advantage if you filed for bankruptcy with a payout plan, whether it was partial or 100%. Finally, if your parents have filed for bankruptcy and are not cosigning for the loan it should have no impact on your loan process.
I will give a more succinct answer to the second question regarding discharging a student loan obligation through bankruptcy. In general, student loans funded privately, by FFELP (Federal Family Educational Loan Program), or by FDSLP (Federal Direct Student Loan Program), are not dischargeable in a bankruptcy case. The only exception to this is if you file an undue hardship petition and a judge rules that the loan can be discharged.
If you want to read a more detailed discussion of these issues you may refer to the following financial aid site: http://www.finaid.org/questions/bankruptcy.phtml. Or please feel free to contact me, a Denver bankruptcy attorney, Kevin D. Heupel at 303-955-7570, or at help@cobankruptcyhelp.com.
