There are many ways filing for bankruptcy can change your life. It can allow you to eliminate or significantly reduce your debt. It can eliminate wage garnishments and save your home from foreclosure. Bankruptcy can even let you build up your credit score over time, since you’ll be free of the crippling cycle of debt and high interest rates. Before filing, check with your bankruptcy attorney about your family’s unique circumstances, such as whether you plan to further your education and apply for student loans.
Federal Stafford Loans
Stafford loans are loans that are insured by the federal government. They can be subsidized (need-based) or unsubsidized. Undergraduate and graduate students may apply for them. As long as the student is enrolled, and during the grace period, the federal government pays the interest on the loan. Thanks to the Bankruptcy Reform Act of 1994, federal Stafford loans cannot be denied to a student because of the borrower’s prior history or current filing of bankruptcy.
Every federal student loan is covered under the Bankruptcy Reform Act of 1994—except for the PLUS loan. The legal requirements of the federal PLUS loan is that the borrower must not have an adverse credit history. Of course, this doesn’t mean that you can never qualify for the PLUS loan if you filed for bankruptcy, but you will need to wait five years from the date of the bankruptcy discharge. Another piece of good news is that if a borrower is denied a PLUS loan, he or she will be eligible for an increased amount in unsubsidized Stafford loans. The amount, as of 2018, is an extra $4,000 per year during the freshman and sophomore years, and an extra $5,000 per year for the remaining two years. These Stafford loans have a lower interest rate than the PLUS loan.
If you have any questions or concerns about your bankruptcy proceeding, the team at Cutler & Associates, Ltd. is always here to help. Contact your bankruptcy attorney in Aurora or Oak Brook by calling (847) 961-4572. If you’re new to our law firm, you can request a free bankruptcy evaluation.