Student loans leave some stranded in debt

Anyone in New Jersey who has recently paid for college knows that the cost can be very high. Many times when students are unable to fund their education, they seek loans to help. After graduation, repaying those loans can become a burden for many, especially with the rapidly rising cost of tuition.

When faced with unmanageable debt from student loans, a person might consider a filing for personal bankruptcy, however, many may be surprised to learn that their student loan debt is generally not dischargeable in personal bankruptcy under current law.

Until Congress enacted changes to the bankruptcy laws in 2005 some student debt was dischargeable in bankruptcy. However, according to reports, facing concern from some sectors about bankruptcy abuse, changes were made to end the student debt exemption. Now loans from both federal and private institutions cannot be extinguished when a person seeks a personal bankruptcy, except under a difficult to obtain hardship exception.

According to reports there are some 37 million Americans who have student loan debt. Of these, an estimated 5.4 million are behind on at least one payment. Additional reports indicate that the median student debt carrier has $12,800 in non-dischargeable student loan debt.

There are situations in which New Jersey residents may find that they must file for personal bankruptcy. While student loans are generally not dischargeable through bankruptcy, many people may find that trying to keep up with student loan payments has caused them to fall behind on other financial obligations. When that happens, many of their debts, including medical payments and credit cards, may be able to be discharged. However, a full review of all applicable exemptions may be in order when considering taking the step to file personal bankruptcy in an attempt to get a financial fresh start.

Source: Bloomberg Businessweek, "Even after bankruptcy, trapped by student debt," Justin Pope, April 25, 2012

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