Does Bankruptcy Affect Your Child's Chances for Financial Aid?
A college education can, in some cases, exceed the cost of a new home. It follows that, without financial aid, many children won't have the option to attend college. Whether your bankruptcy will affect your child's financial aid will depend on the type of financial aid your child is seeking. It may also depend on the type of bankruptcy you filed and how long ago you filed.
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Financial Aid
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Generally, your bankruptcy won't prevent your child from obtaining federal student aid. As a general rule, even if your child filed bankruptcy, that bankruptcy would not disqualify her from federal financial aid because the federal bankruptcy code prohibits federal loan discrimination stemming from bankruptcy. If, however, your child has failed to pay back other student loan obligations, this may stand in the way of her ability to obtain new financial aid.
Bankruptcy
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If you're applying for a Direct PLUS or private loan for your child, the date of your last bankruptcy filing and the type of bankruptcy you filed may affect the outcome. As a consumer, your bankruptcy was likely a Chapter 7 or Chapter 13. Chapter 7 bankruptcies don't drop off your credit report until 10 years have passed from the date you filed. It's seven years for a Chapter 13. Filing a Chapter 7 bankruptcy involves abandoning nondischargeable debts and starting over financially. Chapter 13, on the other hand, involves paying back some, and sometimes all, of your debts through a court-approved payment plan.
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Direct PLUS Loan
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A Direct PLUS loan is a student loan you may apply for on your child's behalf. Your bankruptcy could affect your ability to qualify for the loan, because one of the loan's requirements is that the parent must not have an adverse credit history. If you can find someone with good credit to endorse or co-sign the loan with you, your child may be able take advantage of this form of financial aid in spite of your bankruptcy. Alternatively, if your child is a graduate or professional student, she may be able to apply for the loan on her own.
Private Loan
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If your child is seeking financial aid through a private lender, your bankruptcy won't affect her chances unless the lender requires you to co-sign the loan. If, on the other hand, your child filed bankruptcy, that would have a negative impact on her chances of receiving financial aid from a private lender. Unlike issuers of federal student loans, private lenders generally may discriminate on the basis of the applicant's bankruptcy filing.
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