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The Effect of Bankruptcy on Your Student Loan Cosigner [Q&A]

September 9, 2018

The impact filing bankruptcy has on a cosigner for student loans depends on the bankruptcy you file and if you're ridding their obligation.

You’re thinking about filing bankruptcy. But you have student loans. Some of those loans may be private student loans with a cosigner.

You don’t want to do anything to hurt your cosigner. But you’re overwhelmed with your debt and your creditors are harassing you for money you don’t have.

So you have questions like:

In this post, I’ll give you answers.

So without further delay…

Does filing bankruptcy affect student loans?

Yes, filing bankruptcy does affect student loans by:

This last option is helpful if you’re facing student loan rehabilitation problems because you’ve rehabilitated your loan before.

bankruptcy affect student loans

📷: Allef Vinicius

The other thing to keep in mind is that no matter if you file a chapter 7 or chapter 13 bankruptcy, your student loans will remain. To try and get rid of them, you’ll need to file an adversary proceeding.

Sidenote. If you’re wondering, just because you get a discharge of your student loan, your cosigner’s obligation will likely not be discharged.

So you know, it may be easier to discharge a private student loan in bankruptcy than a federal student loan.

Can I exclude the cosigner on my student loans from a chapter 7 bankruptcy?

No. You cannot exclude your cosigner on your student loans when you file a chapter 7 bankruptcy.

When you declare bankruptcy, you’ll be asked if you have codebtors or cosigners. That information must go on schedule H of your bankruptcy paperwork.

exclude cosigner student loans bankruptcy 1

If you have a cosigner (called codebtor) on your student loans, you’ll be asked to provide their name and street address.

Can you file bankruptcy on student loans with a cosigner?

Yes. You can file bankruptcy on student loans with a cosigner. But that has consequences. More on that later. And it also doesn’t get rid of the student loans.

What is the effect of filing bankruptcy on student loans with a cosigner?

First, the effect of stopping student loan creditors from trying to collect from your cosigner depends on what type of bankruptcy you file.

private student loan bankruptcy cosginer

📷: Ethan Hu

A chapter 7 does not stop collection attempts against your cosigner. But a chapter 13 does.

effect filing bankruptcy student loans cosigner

This is because chapter 13 bankruptcy has a law (11 U.S.C. § 1301) that protects your cosigner from collection attempts. There’s no similar rule in chapter 7 cases.

Second, the loan might automatically default. Some private student loans have language that causes your loan to default if either you or your cosigner file bankruptcy.

One final effect concerns payments. Filing bankruptcy should stop any automatic payments you or your cosigner have on your student loan. Also, some lenders simply refuse to accept payments on your student loans while you’re in bankruptcy.

If either occurs, your cosigner may end up defaulting on the private student loan. To prevent this from happening, stay in contact with your student loan servicer. Also, check your bank accounts to make sure the scheduled student loan payments are being withdrawn.

What happens with my student loans if my cosigner declares bankruptcy?

If you cosigner filed chapter 7 bankruptcy (or any other bankruptcy for that matter) your biggest concern might be making sure your payments will be accepted. Now, this isn’t much of a concern if you haven’t been making payments on the loan because you can’t afford it or in deferment.

But if you were making payments and you want to avoid damage to your credit report, make sure your student loan payments continue after your cosigner files bankruptcy.

What is the likely impact of filing bankruptcy on a student loan?

The likely impact of declaring bankruptcy on your student loans is this: there are few consequences.

First, by filing bankruptcy, collection attempts on the student loan will stop. This is because both chapter 7 and chapter 13 have an automatic stay that stops creditors from taking steps to collect.

Second, interest on the loans will continue to accrue.

Third, unless you prove undue hardship, you’ll still owe the student loans after bankruptcy.

Finally, one other impact, is that you may have issues getting a new student loan after filing bankruptcy. More on that below.

Can I get a student loan after filing chapter 7?

Getting a student loan after bankruptcy can happen. And it doesn’t really matter if you’re trying to get a student loan after filing a chapter 7 or chapter 13 bankruptcy. The outcomes are pretty much the same.

Federal student loans will be easier to get.

Your ability to get them isn’t based on your credit score. You can get a federal student loan after filing bankruptcy so long as you’re not in default and you haven’t reached the maximum borrowing limit.

That said, you may need an endorser (i.e., a cosigner) if you’re a graduate student applying for Direct Plus Loans.

Let me explain.

Direct PLUS loans have a rule that limits your ability to get a PLUS loan if you discharged debts in bankruptcy within the 5 years before you applied for the loan. The Department of Education calls this an adverse credit history.

adverse credit history direct plus loans 1

There are 2 ways to beat this history and still get a Direct PLUS loan:

  1. Get a cosigner who does not have an adverse credit history; or
  2. Send a letter to the Department that explains you declared bankruptcy due to extenuating circumstances.

federal student loan after bankruptcy.jpg 1 1

Other than the adverse credit history part, applying for student loans after bankruptcy is simple.

If you’re an undergraduate student, visit fafsa.ed.gov to apply for federal grants and student loans. And if you’re a grad student, visit studentloans.gov to apply.

Private student loans are different. Your ability to get a private student loan is based on your credit.

After declaring bankruptcy, your credit likely lowered. You’ll need to rebuild your credit to qualify for a private student loan — especially if you want to do so without a cosigner.

Final thoughts

The reality is filing bankruptcy on a student loan may impact your cosigner.

And that’s scary. And it makes for difficult conversations.

But what are you going to do?

You’re in debt. And you need relief.

The best thing you can do is make your student loan cosigner suffers little harm to their credit. You can try to stop harm from happening by making sure all payments on the loan are made or the loan is put into a deferment.

I wish you the best of luck.

If you want my help, let’s talk.

You can email me at tate@tateesq.com. You can call me at 314-884-1886. And you can even…

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