While the answer to the question of being able to take out student loans while filing for chapter 13 bankruptcy is somewhat complex, it is possible to get student loans while in the middle of bankruptcy. The process will be difficult but we strongly recommend working with an experienced bankruptcy lawyer

Financial difficulties impact so many areas of life including homeownership, medical payments, and even education. If you’re questioning whether or not you can get a student loan while in Chapter 13 bankruptcy, you’re not alone. Here’s what you need to know.

What is the Purpose of Chapter 13 Bankruptcy?

Chapter 13 is an extremely effective way to restructure your debt. The most important thing about Chapter 13 is that it will allow you to keep valuable property, such as your home and car, which might otherwise be lost if you were behind on your payments. 

You will need to file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. Chapter 13 will allow you to catch up on past-due amounts on your secured property (home and vehicles). It also will allow you to pay back your unsecured creditors (credit cards and medical debt) with no interest and at an amount you can afford. But what does this mean for student loans?

You Should Discuss Your Plans with a Bankruptcy Attorney

Any additional debt, including student loans, must be approved by your bankruptcy trustee under Chapter 13 bankruptcy. Along with the trustee’s approval, you will need to also carry out a plan for both the trustee and the lender. If you’re considering taking out student loans while in the process of filing for bankruptcy, be sure to consult a bankruptcy lawyer. Together, you can decide the best way to approach the bankruptcy trustee.

How Bankruptcy Impacts Federal Loans

Generally speaking, bankruptcy should have no impact on eligibility for federal student aid. The Bankruptcy Code prevents the Department of Education from denying federal student aid to someone who has been in bankruptcy. Section 525(c) of the Bankruptcy Code states that any governmental unit that offers student aid in the form of loans or grants can’t deny aid to someone who is or has been a debtor in bankruptcy. It can, however, affect eligibility for some student loans and loan programs, but it might not be as bad as you think.

Filing bankruptcy does not prevent you from getting federal student loans or other types of federal financial aid. While some federal loans do require that you have good credit (which may take a little while to build after filing bankruptcy), others don’t depend on creditworthiness. Instead, they look at your financial need based on your current financial situation. 

Federal Loan Eligibility

As long as there are no delinquencies or defaults on student loans currently in repayment, a student should be eligible for additional federal student loans, regardless of any past bankruptcies. However, if some of the federal student loans are in default and were not included in a bankruptcy, then the student will not be able to get further federal student aid until the bankruptcy is resolved. After consulting a bankruptcy lawyer, it will be important for anyone with loans in default to contact the lender (or servicer or current holder of the loan) to set up a satisfactory repayment plan in order to regain eligibility for federal student aid.

How Bankruptcy Impacts Private Loans

Private loans are an entirely different matter, as loan eligibility requires good credit. They often have a higher interest rate than federal loans and generally don’t offer the same type of repayment options. However, borrowers who filed for a Chapter 13 and had a payout plan will be more likely to get a private loan than borrowers who filed a Chapter 7. Consulting with an experienced bankruptcy lawyer will help you further explore all of your options.

Need Help Filing for Chapter 13 Bankruptcy?

At the Bankruptcy Law Center, LLP, we understand bankruptcy laws and can help you file for Chapter 13 bankruptcy. We have offices located throughout Southeastern Wisconsin ready to provide a simple and effective solution to your financial problems. Remember, we are here to help; call us first before doing anything.

For assistance making this important financial decision and with all the steps along the way, contact the Bankruptcy Law Center for Chapter 13 bankruptcy services.