Managing Student Loans

Bankruptcy is a situation where the debtor (the person that owes the money) files a petition with a bankruptcy court to be declared legally insolvent. There are other ways in which a person can be brought into a bankruptcy proceeding. However, for our purposes, it is the effect of a bankruptcy and not the proceeding that is relevant. Basically, when your petition for bankruptcy is granted all of your debts that are part of the bankruptcy estate (with some exceptions) are paid off and/or discharged. As such, you leave the proceeding with a “fresh start.” However, this “fresh start” does not come without a cost.

If your bankruptcy petition is granted your credit score will be completely destroyed. This is not to say that your credit score will become “zero.” However, your credit score could easily drop by about 200 points or more. This means that if you had an exemplary credit score before the bankruptcy, after the bankruptcy your credit score will be among the worst in the population. As such, you will be considered a “high risk” borrower and as a result, you probably will not get approved for many, if any, loans.

As a result of this extreme downturn and resulting credit score, it will be very hard, if not impossible, for you to obtain a loan on your own. As such, obtaining a student loan will be extremely hard to come by. The obvious problem with this is that should a student loan be the only way that you can afford to go back to school, you may not be able to go back. Therefore, you will either have to not go to college or you will have to find an alternate form of funding. This means that you may have to get scholarships and/or you will have to find co-signers that have credit scores that are good enough in order for you to qualify for a loan.

The problem with obtaining co-signers is that they are hard to find because should you default on your loan obligations, the co-signers become personally liable for the loan. Therefore, the person(s) that you get for a co-signer is/are going to have to have great credit and trust you a lot.

The point is, should you want to go to college and can afford the same only by obtaining student loans, you should seriously reconsider your credit situation and avoid filing for bankruptcy. Additionally, it is important to note that student loan debt is usually not dischargeable in bankruptcy. Therefore, seriously consider your financial situation before attempting to go back to school and avoid doing anything that may prevent you from going back.