If you have a spouse and children, filing for bankruptcy won’t just affect you – it will affect their lives as well. If you’ve been dealing with overwhelming debt, they’re already feeling it.
Bankruptcy can relieve a lot of financial stress. However, it’s always important to consider the pros and cons for everyone in the family. It’s important, though, to have accurate information and not just rely on things you’ve heard – or even read (depending on the source).
For example, since bankruptcy affects a person’s ability to get credit, some people are afraid that if they file for bankruptcy, their children won’t qualify for student loans and therefore won’t be able to go to college.
A parent’s bankruptcy doesn’t affect a student’s ability to get a federal student loan through the Free Application for Federal Student Aid (FAFSA) program. That’s because the loan is in the student’s name, and they’re the ones responsible for repaying it after college.
PLUS loans
Another federal program you may have heard of is the Parent PLUS loan program (also called PLUS loans). This likely would be out of the question, at least in the near future.
That’s because it’s the parents who get the loans — typically to save their kids the burden of student loan debt when they graduate. Therefore, approval is based on the parent’s credit record. A bankruptcy filing would probably make you ineligible to get approved for at least five years. (So would a poor credit rating and significant debt). Note that private student loans also require good credit.
Other options
There are also numerous scholarship and grant possibilities available for kids who need some financial help paying for college. Having good grades helps. So does having a special talent or skill or an interest in pursuing a career that needs more young people – or more diversity. These opportunities are worth researching when the time comes.
It’s important to explore the various types of debt relief – including bankruptcy – with an experienced professional. This can help ensure that you’re deciding on the one that’s right for you and your family based on the facts and not on misinformation.