How Bankruptcy Can Impact Your Ability to Finance an Education

For many debtors in Oak Park, filing for consumer bankruptcy can be one of the best ways to get a fresh financial start and to recover after going into substantial debt. However, it is important to understand the ways in which Chapter 7 bankruptcy, for instance, might impact your ability to finance an education.
According to an article from U.S. News & World Report, bankruptcy can indeed “allow borrowers suffocating under medical bills, credit card debt, and home foreclosures to catch a breath and start to rebuild.” At the same time, though, seeking personal bankruptcy protection can make it more difficult to secure a loan of any sort. If you are thinking about going back to school to complete your undergraduate education or to earn a bachelor’s degree, you should talk first with an experienced Oak Park bankruptcy attorney.
Education Loan Consequences for Bankruptcy Filers
As the article notes, securing college financing can be difficult after you have filed for bankruptcy. If you are the parent of a college student or a soon-to-be college student, your decision to file for consumer bankruptcy might make it difficult, or in some cases impossible, to serve as a co-signer on your child’s loan applications.
For instance, Chicago-area residents will need to wait five years after a bankruptcy discharge before being eligible to borrow money from the PLUS loan program for their kids. What is the PLUS loan program? According to a fact sheet from the U.S. Department of Education, PLUS loans are a particular type of federal loan for “graduate or professional degree students and parents of dependent undergraduate students.” Also known as Direct PLUS loans, this type of financing is not available to all students or their parents. Indeed, the fact sheet emphasizes that “the borrower must not have an adverse credit history” in order to secure this kind of funding.
Given that Direct PLUS loans are not just for undergraduate students, consumers who do not have children but are considering a graduate degree should also think carefully about whether bankruptcy is the right choice for contending with debt. As the article underscores, PLUS loans are not the only type of financing for which you can be denied soon after filing for bankruptcy. To be sure, “private loans may also be out of the question for as long as seven to ten years, depending on the lender.”
Other Options for Students and Their Families After Bankruptcy
Just because bankruptcy filers may be ineligible for PLUS loans or private educational loans, there is not necessarily reason to despair. According to the article, in some situations, a parent’s decision to file for bankruptcy can actually help their child to obtain other forms of federal loans. For instance, if a parent is denied a PLUS loan, the student may be able to increase the amount of other direct loans.
In addition, a bankruptcy discharge has no impact at all on numerous other forms of federal funding, including but not limited to Pell Grants and Perkins loans.
If you have questions about whether consumer bankruptcy is right for you, a dedicated Oak Park bankruptcy lawyer can answer your questions today. Contact the Emerson Law Firm today.
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