Borrow Student Loans After Filing Bankruptcy? Yes, Here’s How

Filing bankruptcy won’t stop you from taking out student loans, but it can make it harder to get PLUS Loans and private student loans without a cosigner.

You can use Chapter 7 or Chapter 13 bankruptcy to walk away from your old debts without hurting eligibility for new federal student loans to pay for college. But if you’re returning to grad school, borrowing loans for a child, or considering private loans to help cover costs, you’ll likely need a cosigner.

The Department of Education doesn’t check borrowers’ credit scores before granting most loans. Congress believes every American deserves to attend college, even those with bad credit. But for PLUS loans, it does check credit reports to see if applicants’ have recently fallen behind on a bill, have a wage garnishment, or recently filed bankruptcy. If they have an adverse credit history, they can still get one of these loans, but they’ll need a cosigner.

Similarly, private lenders look for borrowers with steady incomes and good credit. A recent bankruptcy tanks your credit score, making it nearly impossible to qualify for a private student loan without the help of a family member, friend, or other loved one willing to take on responsibility for the debt if you cannot make the monthly payments.

Ahead, learn how to qualify for student loans after a bankruptcy discharge.

Related: How Bankruptcy Affects Financial Aid

A bankruptcy filing can affect your current student loans and keep you from taking out new ones. First, bankruptcy puts current loans into forbearance. But in most cases, these loans cannot be discharged in bankruptcy. Second, you can take out student loans while your bankruptcy case is open. I’ll explain both scenarios in more detail here.

Existing student loans

When you file for bankruptcy, your existing student loans are automatically put into forbearance. No bill is due at that point, but interest will continue to accrue. You’ll also halt any progress toward loan forgiveness programs like Public Service Loan Forgiveness and Income-Driven Repayment Plan Forgiveness.

The court will issue a discharge order at the end of the bankruptcy proceedings, which will wipe away credit card debt, medical bills, personal loans, and other unsecured debts. But you’ll still be stuck with your student loans.

This is because student loan debt isn’t discharged regardless of the type of bankruptcy case you file. To do that, you’ll need to go through a separate process known as an adversary proceeding and prove that paying back your student loans would cause you and your dependents undue hardship.

Related: How to Prove Undue Hardship Student Loans

Most student loan borrowers skip out on offering this proof. Who can blame them? The process is long, expensive, and often incredibly frustrating. You’ll have to reveal your whole personal and financial situation to your lenders and the judge. And you’ll be forced to pass a test — usually the Brunner Test — demonstrating you’ve made a good faith effort to repay your loans, but try as you might, you can’t do it while maintaining a minimal standard of living.

Although wiping out your student loans through bankruptcy is difficult to do, the debt relief you may be able to get can be well worth the effort. Talk with your bankruptcy attorney or a student loan bankruptcy lawyer for help.

Learn More: Does Bankruptcy Clear Student Loans?

New student loans

You can get new federal student loans after filing bankruptcy. The Bankruptcy Code prohibits the U.S. Department of Education from blocking bankruptcy filers from getting federal student aid in the form of grants and loans. That means you can’t be denied financial aid simply because you’ve filed bankruptcy before. It also means you can get federal loans while in Chapter 7 bankruptcy (or a 13, for that matter).

Related: Does Bankruptcy Affect Financial Aid?

This bankruptcy law doesn’t apply to banks, refinancing lenders, and other online financial institutions. Private student loan lenders can (and will) reject your application or demand a cosigner if they believe you’re a credit risk.

You can get new federal student loans before or after your bankruptcy case ends by submitting a FAFSA application on StudentAid.gov. As I shared above, the federal government won’t deny your application because you filed bankruptcy. But you may need an endorser or cosigner if you’re borrowing student loans for a child or to pay for graduate school.

One of the eligibility requirements to get a PLUS Loan is that you can’t have an adverse credit history. The Education Department considers you to have such a history if your credit report shows that in the past 5 years, you’ve fallen behind on student loan payments, had a repossession or eviction, or discharged debts in bankruptcy.

• Education Department. Submit a FAFSA form on the Federal Student Aid website, StudentAid.gov, to be eligible for grants, work-study, federal student loans, and so on. An endorser can be anyone you know who doesn’t have an adverse credit history and is willing to pay the loan if you default.

• Private lenders. Start your search by using an online loan marketplace like Credible to shop for competitive interest rates and repayment terms for new loans and student loan refinance. You can also check with local banks and credit unions to see if either will relax its lending terms.

Related: Do You Have to Fill Out FAFSA Every Year?

You can get student loans while in bankruptcy and after your case ends, but depending on the type of loan you’re applying for, you may need help from a friend or a loved one.

As for any loans you already have, those will stick with you unless you file a lawsuit asking the bankruptcy court to discharge student loan debt.

UP NEXT: Why Can’t You Declare Bankruptcy on Student Loans?