Qualifying for student loans after filing for bankruptcy greatly depends on the type of bankruptcy that was filed and whether the borrower is interested in getting federal or private aid. With federal loans a previous bankruptcy should have no impact on receiving student aid. If the borrower is looking to receive private loans, qualification will be impacted by: the type of bankruptcy filed, how long ago it was filed, and the borrower’s current credit standing.
A previous bankruptcy should not affect a student’s ability to receive federal financial aid. Previously, borrowers who discharged federal loans through bankruptcy had to reaffirm their loans prior to receiving additional federal aid, but that is no longer the case and new aid can be obtained at any time.
Loans including Title IV and Perkins cannot be denied to a student solely because bankruptcy was filed in their past. Financial aid administrators are prohibited from providing a bankruptcy as evidence of unwillingness to repay loans, but schools may take past credit history including bankruptcy, into consideration when determining a student’s willingness to repay loans.
Private loans are usually impacted by a bankruptcy, including some school loan programs. Several private loan programs will not work with a borrower who had a bankruptcy in the last 7 to 10 years, unless they have an eligible cosigner. There are some exceptions, mostly if the bankruptcy was initiated beyond the borrower’s control. Exceptional situations include: medical costs, natural disasters, or other extenuating circumstances.
Some bankruptcies impact private loans more heavily than others:
- Chapter 7: complete liquidation of all personal assets to repay debts
- Lenders will favor this borrower less
- More difficult to get a private loan
- Can file a Chapter 13 within a short amount of time
- Chapter 11 or 13: reorganization bankruptcy
- With a payout plan
- More likely to get a loan than a borrower with a Chapter 7
- Lender will look to see if borrower is eligible to re-file for bankruptcy
- Chapter 11 cannot immediately re-file
- Chapter 7 has to wait 6 years before refilling
- Chapter 13 has no restrictions
- Can file unlimited Chapter 13
- Lenders may be wary of lending to a Chapter 13 because a Chapter 7 can be filed shortly after
There are several resources available that can make this process smoother and easier to understand. As a student it’s important to contact the school you wish to attend and meet with the financial aid administrator. This will help you understand what aid you qualify for at the school and what the school’s payment process is.
A second contact is the lender, either the bank or individual. It will be important to discuss your previous bankruptcy and how that affects your potential loans. A final contact is the attorney that handed the bankruptcy. This contact can help you understand the details of your bankruptcy as well as help with any issues that may arise, especially with private loan options.