Can I Get New Student Loans While in Bankruptucy?

When you qualify for bankruptcy, a court offers you protection from collections so you have time and assistance in paying off your debts. The goal of bankruptcy cases is to entirely absolve your current debt load. As a result, it is challenging to take on new debts while you are in bankruptcy. First, few student lenders will agree to work with you. Second, you will need permission of the court to take on the debt.

Process

When you enter bankruptcy, the court notifies your lenders. They are not permitted to contact you directly until bankruptcy is completed, and they may only do so at that point under direction of the court. The court essentially places a lock on all of your existing debt. You will not continue payments on debts during this time, and your lenders will not attempt to collect. This ceasing of all activity is necessary so a judge or trustee may decide on a payment schedule for your outstanding debts, including any discharges, liquidations or other options to repay your lenders.

Challenges

You send up a red flag to any future lender who may consider working with you when you file for bankruptcy. You have failed to repay your existing debts, and you may be experiencing a financial hardship that makes payments impossible. Typically, lenders are not willing to work with an individual in bankruptcy until the bankruptcy has been successfully closed. Mortgage lenders will wait several years after bankruptcies have been closed before engaging in discussions with borrowers. Student lenders are no different. Even the U.S. Department of Education requires you meet specific credit requirements before taking a federal loan.

Exceptions

While your bankruptcy is occurring, you may find a lender willing to extend you a student loan. In this case, you can only take on the new debt with the permission of the trustee overseeing your bankruptcy. This individual must be certain your new debt will not affect your ability to repay your existing debts currently in the bankruptcy case. The trustee has a responsibility to assure those debts are closed during the bankruptcy process, and you must go through an evaluation whereby the trustee determines you can indeed afford the new debt. You may consider finding a lender who is willing to suspend payments on your student debt for several years to make this consideration possible.

Warning

Taking on debts while in bankruptcy is risky. First, due to your compromised credit, you may find only high risk, high interest loans. Further, your goal while in bankruptcy should be to completely absolve yourself of debts. If you cannot succeed in paying off your existing debts on the trustee's modified schedule, your bankruptcy will not be beneficial to you. Taking on a new debt can compromise your ability to make your bankruptcy case successful.

Benefits

You will be able to repair your credit score much faster after bankruptcy if you succeed in taking on and paying off new debts. The sooner you can secure a loan and make successful payments, the sooner you can rebuild the credit score you had prior to entering bankruptcy. Though taking student loans while in bankruptcy can be challenging and costly, it can speed up this process on the back end.