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.