December 10, 2009

Bankruptcy and Title IV Eligibility

Have you ever wondered how OGSLP handles bankruptcy and Title IV fund eligibility? The following information will clarify how OGSLP makes decisions about students’ eligibility for Title IV funding when he/she is involved with the bankruptcy process.

Here are five basic bankruptcy scenarios that affect a borrower’s Title IV eligibility.

• If a borrower files a Chapter 13 bankruptcy and was not in default prior to the filing of the bankruptcy, additional funding is approved.
• If the borrower’s loan(s) were paid as a default claim prior to the filing of the Chapter 13 bankruptcy and the borrower has a confirmed plan that has been active for 6 months, then schools, lenders and guarantors must treat the repayment term and amount provided for in the debtor’s plan as constituting a satisfactory repayment agreement for purposes of re-qualifying the applicant for new Title IV aid.
• If a borrower files Chapter 13 bankruptcy, was in default prior to the filing of the bankruptcy and is required by the plan to make payments outside the plan (not through the Trustee’s Office) to our agency but is not doing so, the additional funding is rejected.
• If the borrower’s loan(s) were paid as a default claim before he/she filed for Chapter 7 bankruptcy relief and the borrower is not in satisfactory repayment, the additional funding is rejected.
• If the borrower’s loan(s) were paid as a default claim before the borrower filed Chapter 7 bankruptcy and the borrower is in satisfactory repayment, the additional funding is approved.

Please remember that borrowers, lenders and educational institutions should consult with an attorney when dealing with bankruptcy law and bankruptcy courts. Parents applying for PLUS loans for a student may be affected differently when the parent has filed for bankruptcy protection in the past or is currently involved with the bankruptcy court system.

If you have questions about bankruptcy and aid eligibility, contact Brandi Casteel in OGSLP’s Legal department at 405.225.9391, 800.247.0423 (toll-free) or bcasteel@osrhe.edu.