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Bankruptcy can be the better option than defaulting on loans

Everyone faces financial challenges from time to time. Whether its medical debt or credit card bills, many people struggle to make payments and stay on top of their obligations. In some cases things simply get to be too much. When this happens one option is bankruptcy. However, Tennessee consumers looking to further their education may have some questions about how filing for bankruptcy will affect their ability to secure student loans.

As it turns out, while filing for bankruptcy can affect college financing, like any other loan, the effect is temporary. Consider the federal Parent Direct Plus Loans, for example. If a parent files for bankruptcy they are ineligible to borrow form the PLUS loan program for five years after filing.

While this may seem like a major obstacle, students who are denied access to the PLUS loan program can actually benefit from their parents bankruptcy. If a parent is denied a PLUS loan, for example, the student can get a boost in their Stafford loan eligibility. This could result in as much as a $5,000 increase in the amount of the award. With better interest rates, this may actually be a better option than the PLUS loans.

Another thing that is important for consumers to consider is that in most cases, if someone is at a place in their financial life that they are considering filing for bankruptcy, odds are they wouldn't qualify for a credit based loan anyways. And, in the long run filing bankruptcy and rebuilding over time is a much better way for consumers to redeem their financial life than to simply begin defaulting on their loans and missing payments.

If borrowers are drowning in medical bills, credit card debt and mortgage payments, bankruptcy is one option to getting the fresh financial start that everyone deserves. Consumers looking for debt relief may benefit from discussing their options with a professional.

Source: U.S. News and World Report, "How Bankruptcy Affects College, Grad School Financing," Kelsey Sheehy, Nov. 14, 2013

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

Toll Free: 888-376-0282
Phone: 423-933-1606
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