Can I Get a Student Loan After Filing Chapter 13?

It is possible to obtain student loans while in or after Chapter 13 bankruptcy. Understanding the distinctions between federal and private student loans, as well as the necessity of court authorization for new debt, is crucial for anyone considering this path.

Federal Student Loans After Chapter 13

Federal student loans offer various benefits, including fixed interest rates and income-driven repayment plans, making them a common choice for students. Eligibility for these loans generally requires enrollment at least half-time in a qualifying degree or certificate program, satisfactory academic progress, and not being in default on existing federal student loans. For some federal loans, demonstrating financial need is also a requirement.

Filing for Chapter 13 bankruptcy does not automatically disqualify an individual from receiving federal student aid. Federal law, specifically 11 U.S.C. § 525, protects individuals from being denied federal grants, loans, or work-study solely due to a bankruptcy filing. This protection applies both during and after the bankruptcy case, even after a discharge. This means that programs like Pell Grants, Direct Subsidized Loans, and Direct Unsubsidized Loans remain accessible, as they do not require a credit check.

However, certain federal loans, such as Parent PLUS Loans and Grad PLUS Loans, do involve a credit check. A bankruptcy record, whether active or recently discharged, can trigger an “adverse credit history” flag for these specific loans. If this occurs, the applicant may still qualify by obtaining a creditworthy endorser (similar to a co-signer) who agrees to repay the loan if the borrower does not, or by completing PLUS Credit Counseling through the Department of Education. A Parent PLUS Loan denial due to adverse credit can also make the student eligible for increased unsubsidized Stafford loan limits.

While a Chapter 13 bankruptcy does not discharge student loans, these loans can be included in the repayment plan. Since July 1, 2024, a new Department of Education regulation provides credit towards loan forgiveness programs for each month a debtor makes required payments under a confirmed Chapter 13 plan, even if direct loan payments are not being made. This change ensures debtors in Chapter 13 are not penalized for administrative forbearance during their bankruptcy case.

Private Student Loans After Chapter 13

Obtaining private student loans after filing Chapter 13 bankruptcy presents more significant challenges compared to federal loans. Private lenders are typically banks, credit unions, or online institutions that base approval on creditworthiness, meaning they conduct a credit check. A Chapter 13 bankruptcy filing significantly impacts a borrower’s credit score and history, which private lenders often view as a substantial risk.

Despite the credit impact, securing a private student loan may still be possible. A primary strategy involves applying with a creditworthy co-signer. The co-signer, who must have a strong credit profile, agrees to share responsibility for repaying the loan, reducing the perceived risk for the lender. Lenders evaluate both the borrower’s and the co-signer’s credit history and financial information.

Private lenders may also require specific documentation beyond standard application forms. This could include proof of income, an active Chapter 13 plan, or evidence that the debtor is repaying a portion of their debt under the plan. Some lenders might be more flexible if the debtor is in an active, court-approved Chapter 13 plan and repaying a high percentage of their debt. However, private loans generally offer fewer borrower protections and less flexible repayment options compared to federal loans, often with higher interest rates. Therefore, private student loans should be considered after exploring all federal aid options.

Bankruptcy Court Authorization for New Debt

While undergoing a Chapter 13 repayment plan, debtors are prohibited from incurring new significant debt without explicit permission from the bankruptcy court and the Chapter 13 trustee. This requirement extends to student loans, as they represent a new financial obligation. Incurring debt without this prior approval can lead to serious consequences, including the dismissal of the bankruptcy case.

Requesting authorization typically involves filing a “Motion to Incur Debt” with the bankruptcy court. This motion must clearly explain the loan’s purpose, such as funding education to improve future income potential. It also needs to specify the proposed loan amount, interest rate, terms of repayment, and how the new debt will fit within the existing Chapter 13 plan and budget without jeopardizing current payments to creditors. Supporting documents, such as an amended Schedule J (expense list) showing the new payment, may also be required.

The bankruptcy trustee and the judge review the motion to assess whether the new debt is necessary and feasible. They ensure the additional financial burden will not interfere with the debtor’s ability to continue making their Chapter 13 plan payments. While a hearing is not always required, one may be scheduled if an objection is filed or if the court requires further information. Consulting with a bankruptcy attorney is advisable before taking on any new debt, as they can guide the debtor through the process and help prepare the necessary documentation to secure court approval.

Applying for Student Loans

Once eligibility for student loans is confirmed and, if necessary, bankruptcy court authorization has been secured, the next step is the application process. For federal student loans, the Free Application for Federal Student Aid (FAFSA®) is the gateway to various forms of financial assistance. The FAFSA must be completed and submitted annually, as circumstances can change from one academic year to the next.

The FAFSA collects information regarding the applicant’s family size, income, and personal income, if any, to determine aid eligibility. Applicants will need to create a Federal Student Aid (FSA) ID to access the online application. After completing the student section, any required contributors, such as parents, must provide their information and consent to transfer federal tax information. The form is considered complete only after all required parties have signed and submitted their sections. The FAFSA can be submitted online through StudentAid.gov or by printing and mailing a PDF version.

For private student loans, the application process typically involves applying directly through the lender’s website. These applications require basic personal and financial information, and applicants may be asked to choose their preferred interest rate type (fixed or variable) and repayment plan. If applying with a co-signer, they will also need to provide their financial details. Lenders perform a credit check as part of their review process. While there is no fee to apply for private student loans, it is important to review the terms and conditions carefully.