It’s not going to prevent you from getting a student loan, although they do take note of whether or not you’ve defaulted specifically on student loans in the past. If you have defaulted on other kinds of loans, it may cause a problem if you have a lot of defaults specifically on student loans and the bankruptcy on top of that. That could cause an issue. If you just have a bankruptcy itself, that alone is not going to prevent you from getting a student loan.
Can Student Loans be Discharged in a Bankruptcy?
If we’re being hyper-technical, they are not non-dischargeable but the problem is that they are only dischargeable if there is a showing of undue hardship. As the debtor, you have to show that you have an undue hardship, there is a presumption that exists against you, meaning that you have a burden to prove that these student loans that you have would cause an undue hardship. It’s so difficult to meet that bar that it’s essentially impossible to do that. So, that’s why it’s common knowledge that they are non-dischargeable.
That’s not technically true but in all practical purposes, unless you are really in a place where it’s really impossible because some of the stories I’ve heard sound like undue hardship to me, but they’ve been denied by the courts, so for practical purposes, you’re not going to get your student loans discharged. There may be some changes in the near future on that. It’s something that’s always being batted around, so it’s an area that’s interesting and it could be changing soon.
How Soon After A Bankruptcy Should Someone Try To Start Rebuilding Their Credit?
You don’t have to wait until it’s complete. The way bankruptcy works is everything revolves around the day that you file your petition. A bankruptcy itself, if it’s a Chapter 13, could take as long as 5 years. If it’s a Chapter 7, it will probably take 3 or 4 months total.
During that time period, there is all kinds of stuff going on with your bankruptcy case, but the only thing that really matters is the date that you filed your petition because that is the date at which the trustee takes a fictional bankruptcy estate, they take all of your possessions and your assets from that day and they have control over that. Everything that happens after that is a whole new ballgame.
If you file bankruptcy on 28 March, then everything up to that point in your life is subject to what’s going on with the bankruptcy. On March 29th, anything you do as far as getting new credit or taking out loans or whatever, buying assets, anything that happens after that is not part of that bankruptcy.
If you want to rebuild your credit, of course you have to be responsible about it and you want to be smart about it because you don’t want to get yourself back in the same position that you just got out of, but there is no reason to wait. The sooner you start to build credit by taking responsible, small amounts of credit and making sure to pay them back on time and things like that, the sooner you start that the sooner you’re building up your credit, so there is really no reason to wait until the bankruptcy is closed.
What Are the Best Ways to Start to Do Build Up Your Credit Again?
The best way to start is probably going to be a car loan, not necessarily a new car loan, or a credit card. The reason is that they’re the easiest to get right away. The way credit ratings work in general is your score is going to increase when you have a long history of on-time payments and it’s also increased by certain kinds of debt that you take on. If you have a mortgage and you pay the mortgage on-time for a long time, that’s really going to help your score out. Having some different kinds of debt also helps your score out a little too.
Right after you file a bankruptcy, you are probably not going to be in a position to take on a mortgage. You want to start with something that you can get right away and you want to start to build up some of that good credit mojo, so to speak, so that you can then kind of take the steps up to maybe mortgage down the road or some other kinds of secured debts, for instance furniture, appliances or something like those kinds of things.
In general, you want to start out with those unsecured debts that are kind of low hanging fruit and get a car in there and then get some other kind of secured debt you can built up down the road and in no time, you will be back where you were and doing really good.
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