Disturbing new trend in personal debt

Many people in Massachusetts are doing better than they were 10 years ago, in the depths of the Great Recession, when the housing bubble collapsed and took the global economy with it. However, there are still plenty of people who are struggling with debt and need help.

A study of people who filed for Chapter 7 bankruptcy protection found a disturbing new trend: Student loan debt is apparently an increasingly big part of the debt that drives people to seek out protection. This is especially troubling because it is difficult to discharge student loan in bankruptcy.

According to a study by LendEdu, 32% of consumers who file for Chapter 7 carry student loan debt. Among these consumers, their student loan debt makes up 49% of their total debt. This is by far the highest proportion of their debt. By contrast, credit card debt makes up only 5% of their debt, and medical debt only 4%.

Many people are discharging their other forms of debt through Chapter 7 but left with nearly half their total debt in the form of student loan debt.

Technically, student loan debt is dischargeable through Chapter 7 bankruptcy, but it is very difficult. Debtors must prove they will face "undue hardship," meaning that they will not be able to meet a minimum standard of living unless the loan is discharged.

Some lawmakers have argued that the undue hardship standard is too harsh on debtors, and have proposed changes, but it will be a long time before their proposals become law, if they ever do. In the meantime, people facing student loans and other types of debt should talk to an attorney with experience in debt relief about their options.

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