Anyone can suddenly discover their debt has overtaken their ability to repay their bills. Many people have more than their credit to worry about when they decide to file bankruptcy. Parents that avoid the process often do so because they believe the filing could make life difficult for their children. Bankruptcy may cause complications, but it does not have to end any dreams.
Student Loan Applications
Students have the same access to financial aid after a parent files bankruptcy because grants, scholarships, and federal loans do not rely on credit scores for approval. The difficulty arises if the parents hoped to co-sign a personal loan or take out a PLUS (Parent Loan for Undergraduate Students) loan. The expected family contribution may also be higher due to bankruptcy.
People deeply in debt may not receive approval for a PLUS loan, even if they choose to hold off on their bankruptcy filing. Parents can only qualify if they do not have more than $2,085 worth of debt in collections or bills of that amount or more past due for at least 90 days. Repossessions or foreclosures within the prior five years also disqualifies the applicant.
Students may qualify for an increase in Stafford loans when there is a PLUS loan denial. The increased amounts match what independent students would have available to them. Only parents and legal guardians may apply for a PLUS loan, but students have options for personal loans. Another family member or responsible adult can co-sign personal loans with them.
Auto Loan Assistance
The court will notify adult children whose parents co-signed an auto loan with them. The notice does not mean the child will lose their vehicle. The parent should make their child aware of the bankruptcy before they file, so the child can contact the lender to inform them of their intention to continue paying the loan.
If the loan is not current, the advance notice becomes more important. The adult child must pay all late payments so the loan is current before the bankruptcy hearing. Sometimes the full loan becomes due when the co-signer defaults. Advance notice enables the child to seek out a new cosigner or to refinance the loan in their own name, if possible, to avoid this concern.
Another option is to reaffirm the loan as the co-signer during the bankruptcy process. The reaffirmation process is risky because it means the loan no longer qualifies for bankruptcy protection. It is only possible if the court decides the filer can afford to make the payments along with any other debt they have reaffirmed.
Secure Home Rentals
Renters that stay current on their rent do not have to worry. The property owner does not receive a notification of the bankruptcy unless the tenant owed back rent and listed the debt in their paperwork or the debt was transferred to a collection agency. New renters, because of a foreclosure, will have to make more of an effort when they seek another residence.
Most property management companies, as well as individual building owners, perform a credit check on applicants. The bankruptcy may cause some to refuse the applicant, but many will still accept the new tenants. Private owners may have more flexibility, and simply require proof of income and a list of references.
Bankruptcy allows parents to have freedom from overwhelming debt. Complications may arise, but the reduced burden enables many people to start a savings account and pay cash more easily for the things their children need. At Wiesner & Frackowiak, LC, we can answer all your questions about how bankruptcy will affect you and your family. Contact us to schedule a consultation today.