Being in a Chapter 13 bankruptcy won’t stop you from getting a Pell Grant, work-study, and most federal student loans, but it could make it harder to borrow PLUS Loans and private student loans.
Filing a Chapter 13 bankruptcy doesn’t mean you have to put your education on hold. You can still fill out a Free Application for Federal Student Aid (FAFSA) form and qualify for most federal student loans and Pell Grant money, depending on your personal finances. But you’ll face obstacles if you’re heading to graduate school, paying for your child’s cost of attendance, or needing to borrow private student loans.
Bankruptcy law* ordinarily prevents the U.S. Department of Education from denying debtors financial aid even if they’re in the middle of a bankruptcy proceeding. But strangely, it doesn’t stop the department from blocking parents and grad students from borrowing PLUS Loans.
Those types of loans don’t demand a good credit score, but they require student loan borrowers to have a clean credit history. If a credit check reveals they had a recent bankruptcy discharge, wage garnishment, foreclosure, and so on, the department will consider them to have an adverse credit history and deny their application unless they get a cosigner or endorser to agree to accept responsibility for the debt. Read more about borrowing Parent PLUS Loans in Chapter 13.
Similarly, private lenders are often unwilling to approve applications for people in an active bankruptcy case. Even if they were, the borrower would need permission from the bankruptcy court before taking out the loan. Getting that approval can be challenging if the monthly payments start right away.
You can still fill out a FAFSA form and qualify for most federal student loans and Pell Grant money while in Chapter 13 bankruptcy, but you may have difficulty borrowing PLUS Loans or private student loans.
The U.S. Department of Education can’t deny debtors financial aid because of bankruptcy, but they can block parents and grad students from borrowing PLUS Loans if they have an adverse credit history.
Private lenders are often unwilling to approve applications for people in an active bankruptcy case, so it may be difficult to find a loan after filing Chapter 13.
* The anti-discrimination rule appears in 11 USC § 525(c) of the Bankruptcy Code. Section 428B(a)(1)(A) of the Higher Education Act of 1965 provides that PLUS Loan borrowers may not have an adverse credit history.
Related: How to Get Financial Aid After Filing Bankruptcy