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Can Universities in Boston or Massachusetts Discriminate Against Bankruptcy Filers?

Clients and potential clients in Massachusetts sometimes ask us if filing for a Chapter 7 Personal Bankruptcy will have any adverse effect on their current or future student loans. The answer is fairly clear: no. In 1978, Congress passed a law which prevented various types of discrimination against folks who filed for bankruptcy protection. With respect to denying student loans, the law states that a governmental unit “may not deny a student grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act.”

(1) A governmental unit that operates a student grant or loan program and a person engaged in a business that includes the making of loans guaranteed or insured under a student loan program may not deny a student grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, or another person with whom the debtor or bankrupt has been associated, because the debtor or bankrupt is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of a case under this title or during the pendency of the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.
 
(2) In this section, “student loan program” means any program operated under title IV of the Higher Education Act of 1965 or a similar program operated under State or local law.
 
The issue of student loan dischargeability is different. Once given, it is very difficult to discharge student loans in federal bankruptcy.