Acquiring Additional Student Loans While in Chapter 13

Federal Bankruptcy Law contains a section, 525c.  This section prohibits any government agency from denying a person a government sponsored loan based solely on having filed for bankruptcy.  All of the other reasons that can be applied to such a loan and cause it to be denied are in good shape.  So, a federally sponsored student loan is possible as long as the other student loans that the debtor has are not themselves in arrears.  Federal law prevents any federal agency from granting loans to any person with federal loans lagging in payment.

Some people say that other than federal loans a person in Chapter 13 has little hope of getting a student loan.   Student loans are currently excluded from discharge based on a change in bankruptcy law in 2005, so a debtor must continue to pay these loans even if the creditors are unable to continue any collection activities due to the automatic stay of bankruptcy.  Chapter 13 reorganizes the debtor’s income to pay what needs to be paid then pay something to the remaining creditors.  Bankruptcy does impact the debtor’s credit numbers.  Other than impacting the one’s credit report, a potential student loan creditor likely already knows because the debtor will certainly have spoken about this early on in the loan conversation with the loan officer.  That loan officer may also need to be told of one’s plan to obtain employment to be able with certainty to pay on the coming due loan payments.

While under a Chapter 13 any debt exceeding $500 must to be approved by the trustee.  Because state rules differ on this, depending on where you are living a simple letter to the trustee might be enough but most often a formal motion must be filed with the court.  One of the biggest items in the decision will involve your ability to make your Chapter 13 plan payments as well as any new debt that might impact it.  Yet, since payments on many student loans can be deferred until after you graduate, current payments under Chapter 13 may not be impacted and this may not be a problem.   Where a problem may arise in the plan that a debtor seeking more debt must submit is the length of time the Chapter 13 payment plan runs.  It may exceed the debtor’s college time, making these student loan payments active and a threat to the Chapter 13 payments.  The mitigation to this risk is to show how improving one’s job situation is likely to occur and how this will lead to having more money available for payments.

Neither the court nor the trustee want to be any kind of a roadblock in the possibilities of bettering one’s self and improving one’s financial conditions in the long term.  Working this out with one’s bankruptcy attorney is a good first step in the present of one’s plan to the trustee and to the courts.  Be prepared to answer a trustee’s concern about how the debtor can be confident that the job opportunities presented in the motion to increase debt will be there, how the obtaining of such a position can almost be certain.

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