Good credit history is needed for all kinds of financial aids and support. Filing for bankruptcy can leave a black mark on your credit history and will stand out when you file for refinancing or any other financial support during their repayment journey.
Bankruptcy indicates that the borrower is a high credit risk. And if a borrower is looking to refinance then it will be harder for him/her to do so after filing for bankruptcy.
Most lenders won’t consider refinancing of student loans after filing for bankruptcy. While the other lenders who do look past bankruptcy, allow the borrower to refinance with them but they have stringent requirements which makes it much more difficult.
If you have decided to file bankruptcy and proved that repaying your loans will result in an undue hardship. After which you still carry some or all of your previous student loan debt, is refinancing still an option? Right of the bat, we need to get this clear that you will undergo higher restrictions and a lesser number of options available. Let us jump right into the options available.
Table of contents
- How do I refinance my student loans after bankruptcy?
- Lender requirements
- Why is it so hard to refinance after filing for bankruptcy
How do I refinance my student loans after filing for bankruptcy?
High student loan debt isn’t the only factor that causes financial distress, we have a number of other contributing factors. The recent graduates now have a number of loans carried over their heads with monthly payments to be made for each loan. Refinancing your student loans can help reduce the financial burden and also help in making the debt more manageable.
If you have already filed for bankruptcy and have now found refinancing as the best option to go forward with for managing your debt. Then here are the 3 steps you can use to refinance your student loans after filing for bankruptcy:
1) Search for lenders who will overlook the fact that you filed for bankruptcy in the past - There are a number of lenders in the market out there, so you will have to snoop and ask around. There is no harm in asking around, lenders make it a priority to have clear policies regarding their services provided.
The lender service representatives will also outline eligibility requirements to be met before you decide to apply. This can help prevent a hard credit check being conducted on your sensitive credit history.
2) Get a co-signer to help strengthen your application - In some cases the lender will make the co-signer get the primary borrower status. This is a hard decision to make because the co-signer will now have to share the burden of debt. Not all lenders will allow a co-signer option to be sure to check when you shop around for lenders
3) Patience - the last and final step is to practice patience. By patience don’t just sit idle or meditate in the hills. Go and rebuild your credit score and make those payments on time. This will take some time, you will have to dedicate at least 2 to 3 years for rebuilding your credit.
It will seem hard because you need to bounce back from bankruptcy but as mentioned earlier ‘patience’. After you build your credit score you can apply to refinance with a lender with whom you meet the credit requirement.
Worried about your college tuition? Learn more about student loans
Requirements stated by lenders who allow refinancing after bankruptcy
Not a lot of lenders are open to refinancing student loans of a borrower after bankruptcy. This is because of the fact that the borrower appears to be a high credit risk. But there are lenders who oversee this, we will talk about two such lenders - College avenue and Laurel Road.
1) College Avenue - They consider refinancing but it depends, they might refinance with a particular borrower and reject another borrower even if both have filed for bankruptcy. It is for this reason that it is very case-specific.
If the borrower has shown a strong financial responsibility after filing for bankruptcy then there are chances of him/her being cleared for refinancing with College Avenue.
It is advised to use a pre-qualification tool before you apply as it shows how strong your application is for refinancing and how you can go about further strengthening it. This won’t affect your credit score.
2) Laurel Road - They are also case-specific and show consideration for those who show financial responsibility after filing for bankruptcy. They study the time following bankruptcy to check whether you have rebuilt your credit and if you have a solid employment history.
You can show a strong financial responsibility by making on-time payments on your credit card bills and much more. A strong employment history helps show stability.
Why is it so hard to refinance my student loans after filing for bankruptcy?
As discussed earlier those who file for bankruptcy are thought of as high credit risk. No lender would ever give money to those who can’t show any potential in paying it back. It indicates financial irresponsibility no matter what led to you filing for bankruptcy.
You could have gone through a divorce, a horrible accident, been subjected to the downturn of the market conditions but a lender will not take this into consideration. Your personal circumstance which could have led to bankruptcy is not included in your credit history and all a lender needs to pay attention to is the credit history.
Like we discussed earlier taking on the chin and be patient and rebuild your credit. Patience is key.
Has it been a while since you filed for Bankruptcy?
If you had filed for bankruptcy a couple of years ago then you can try refinancing with Massachusetts Educational Financing Authority which will consider those applicants who filed 60 months ago for bankruptcy.
Be aware of all the options available to you. If you have filed for bankruptcy and now Commonbond or Earnest has rejected your application to refinance then you need not worry. You have options with College Avenue and Laurel Road and depending on your time of filing for bankruptcy you can even check with Massachusettes Financing Authority.
Always remember you can build your credit from scratch.