Filing for Bankruptcy as a Parent: How Will My Children be Affected?
Filing bankruptcy is never an easy choice to make. There’s a certain built-in cultural resistance to acquiescing to bankruptcy, which can be bolstered even further by the daunting tasks of hiring a bankruptcy attorney, filling out complicated paperwork, appearing in court, and worrying about how you will be perceived by employers, future lenders, and friends and family. If you have a child or children, your first concern is probably going to be for their futures: how will filing for bankruptcy affect them? Will they still be able to benefit from student loans when they reach college age?
Bankruptcy and Student Loans
Besides buying a home, college is likely to be the largest and longest-running expense in your child’s life. With tuition rates showing a frightening 275% increase between 1990 and 2009, virtually no one in America is able to attend a college or university without borrowing at least something. With “saving up for college” a bigger task than ever before, it makes sense that a parent who has filed or is considering filing for bankruptcy would be worried about having an adverse affect on their child’s education (and, in turn, their ability to find a job and become independent and confident adults). So, will it?
Fortunately, it probably won’t. The Bankruptcy Reform Act of 1994 made changes to the U.S. Bankruptcy Code 11 USC § 525 which mean that, to this day, the government cannot deny federal loans due exclusively to the student or borrower having a current or past bankruptcy in their financial record. (Private loans, unfortunately, do not fall under this umbrella.)
There is one exception group to this protection: Federal PLUS (Parent Loan for Undergraduate Students) loans. Where taking out PLUS loans are concerned, it is illegal for the borrower to have a bad credit history, including wage garnishment, foreclosure, liens… or bankruptcy. But, the PLUS cloud has a silver lining. Two, in fact:
- If five years have passed since the end of the bankruptcy, borrowers are again in the clear.
- If you are denied a PLUS loan due to a bankruptcy, you can help offset the loss with a specially beefed-up Stafford Loan. For borrowers who are ineligible for PLUS loans, Stafford loans add some extra padding to their normal upper limits: padding to the tune of $4,000 annually during the freshman and sophomore years, and $5,000 annually during the junior and senior years.
Additionally, students who are children of bankrupt or formerly bankrupt parents are still eligible for many typical collegiate support-systems and activities, such as work-study programs, grants from their particular school, and federal grants.
Our Philadelphia + Bucks County Bankruptcy Lawyers Can Help
If you are considering filing for bankruptcy, don’t hesitate. The longer you wait, the deeper the financial hole is going to become. Bankruptcy can save possessions, silence creditors, and give you the support you need to nurse your wounded credit back to health. Contact Young, Marr, Mallis & Associates online, or call us at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania.