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Massachusetts Student Loan Defaults Up – Not Dischargeable in Bankruptcy

According to statistics out this week from the US Department of Education, the rate of student loan defaults is trending up. This is likely a result of the “economic downturn” in Massachusetts, according to the Secretary of Education. This is a website to vent about the problems with student loans in Massachusetts.
Many of our Boston clients are students or former students. They often have student loans in addition to outstanding credit card debt, car loans, and monthly bills to pay. Unfortunately, student loans are not dischargeable in bankruptcy. This includes both public and “private” student loans.

The exception in the law is for “undue hardship,” which, in our opinion, means you are disabled, have no assets, and have no likelihood of obtaining work or assets in the future. These are hard to prove; you have to file a separate action in the Bankruptcy Court and go against the United States Attorney’s Office as they are the ones that “collect” monies for the U.S. Government. Contrast this to discharging debt not owed to the US Government, which is handled by the Trustee’s Office. Their goal is to look for assets to distribute to your creditors. If you have no assets, or we can show that your assets are exempt, they have no interest in pursuing your case.
Student loans can be consolidated, through Sallie Mae, or through some other provider. They can also be consolidated in a Chapter 13 Bankruptcy. Furthermore, the Department of Education is designing flexible repayment programs under the new administration.
Most significantly, however, in a personal bankruptcy when consumer debt, personal loans and arrears on repossessed vehicles and mortgages are discharged, student loans become less of a burden.