Bankruptcy & Eligibility For Financial Aid
Bankruptcy is a legal process which occurs if you cannot pay back the debts that you owe. It is possible to voluntarily induce the bankruptcy process, and to lodge a petition known as a debtor’s petition. It is also possible for a creditor to take action against debts that you owe them, and can initiate a court order to do so.
The main reason why people declare bankruptcy, is that in many circumstances the debt is wiped entirely. Legal action and collection also ceases on unsecured debts once the bankruptcy is signed. For anyone who is suffering from extreme debt problems that are becoming impossible to overcome, bankruptcy provides crucial relief.
The Consequences Of Bankruptcy
Bankruptcy is a drastic solution, and it is highly recommended that you take action to regain control of your debts before filing it. There are many other debt solutions available that can help you to get out of debt, and most of them should be considered before bankruptcy.
The consequences of bankruptcy are severe and far-reaching. Your credit rating will be seriously affected for 7 years, your details will be permanently recorded on the National Personal Insolvency Index, and you will even face restrictions on your employment opportunities and travel.
On top of this, some of your assets can be seized to help pay off your debts, though you will be able to keep some. In other words, bankruptcy offers you a new start financially; but it comes with a price.
How Does Bankruptcy Affect Eligibility For Financial Aid?
Given the many consequences of bankruptcy, many people are left wondering how their eligibility for financial aid is affected. Are you still able to obtain a student loan for yourself or your kin?
Federal Loans: Your ability to secure a Federal Student Loan for either you or your child will not be affected by your bankruptcy. The Bankruptcy Reform Act 1994, protects you from being rejected on the grounds of bankruptcy alone, and federal student loans are not dependent on your credit history, or on parent’s credit history. Grant and scholarships also remain unaffected, whether federal, state, or coming from the college.
PLUS Loans: PLUS loans are a different story, and they do depend on the credit history of the debtor. PLUs loans are usually available to those taking graduate and professional degrees, or to parents of dependent undergraduates. If you, or your parents, have been bankrupt in the past 5 years, then you are not eligible for a PLUS loan, and even after that time your bankruptcy may still be considered as a factor. This can be a blow given the rising cost of education.
Private Loans: When it comes to financial aid, the real problem with bankruptcy is that it will be incredibly difficult to obtain private loans. In this case lenders always consider credit ratings and financial records, and a recent bankruptcy will set their alarm bells ringing. Students who are looking for private loans to fund their education may be affected by their parent’s bankruptcy status, if a co-signature is required, which in most cases it is. In this case, the student will have to find someone else to co-sign the loan.
