Consequences of Bankruptcy
The bankruptcy discharge is intended for certain borrowers who have filed a petition for relief under the Bankruptcy Code. Student loans are not dischargeable through bankruptcy.
Student Loan Consequences of Bankruptcy
While collection activity may cease under bankruptcy relief laws, borrowers will most likely be responsible for all of their student loan debt.
Borrowers who declare bankruptcy and have loans already in a default status will need to make six voluntary, satisfactory payments to regain federal loan eligibility. Please note that borrowers who filed under Chapter 13 may already have made payment arrangements through their bankruptcy plan. Six consecutive payments to the court-appointed trustee will still be necessary. Questions regarding defaulted loans in relation to bankruptcy may be directed to Rita Ray at 1-800-MGA-LOAN (1-800-642-5626), extension 30359.
Financial Consequences of Bankruptcy
Bankruptcy is different than a poor credit rating. Bankruptcy will make it very difficult to obtain any other type of credit for up to ten years. Under certain circumstances (i.e., applying for a job that requires security clearance or bonding, purchasing life insurance, applying for a mortgage), a bankruptcy may affect a person's credit history for the rest of his or her life.
Bankruptcy should be the absolute last resort for any borrower. Contacting individual creditors, credit counseling agencies or debt management firms may be in a debtor's best interest rather than declaring bankruptcy. Borrowers are encouraged to try to resolve all credit issues outside of bankruptcy.
For more information on financial management see the Department of Insurance and Financial Services.