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Student Loan Debt


In New Jersey, a Student Loan Debt is unsecured debt that is specifically excepted from a general discharge in a chapter 13 and 7, with one exception. With regard to a Chapter 7, typically, the order of discharge does not discharge or eliminate a student loan. This means that after the bankruptcy is complete, the debtor owes the total student loan balance, plus any interest that continues to accrue. After the completion of the chapter 7 case, the student loan creditor may pursue the debtor for the loan balance as if no bankruptcy case was filed.

The only exception which permits the discharge or elimination of a student loan is if payment of the debt would impose an undue hardship to the debtor. Typically, the exception regarding undue hardship relates to the debtor’s physical or mental disability, which results in a debtor’s inability to work. The debtor must provide proof to the bankruptcy court by way of doctor’s reports and tests, indicating that the debtor is disabled and unable to work. The debtor must file a separate motion and obtain a separate court hearing, requesting an order discharging the student loan debt.

Although student loan’s may not be discharged, upon the filing of any bankruptcy case, no creditor may pursue any action against the debtor, including a student loan creditor. Only after the chapter 7 or chapter 13 case is fully completed and/or discharged, may the student loan creditor pursue the debtor for the balance due.

Student loan debt in a Chapter 13

In New Jersey, the student loan is treated as any general unsecured debt, during the pendency of a chapter 13 plan. As I stated in a separate portion of this website, any and all unsecured debt must be treated equally. Therefore, any payments to general unsecured creditors must be paid to all unsecured creditors pro rata. In the event that all creditors are paid 100%, the student loan debt must also be paid 100%. The difference between unsecured debt and student loan debt is that the portion of the student loan that is not paid during the bankruptcy plan, continues to be due after discharge. Also, any and all interest on the balance continues to accrue during the bankruptcy plan.

Contact a Bankruptcy Attorney in NJ

The laws regarding which type of debt is dischargeable in your NJ bankruptcy case, may determine whether you wish to file. These type of important issues are why it is important to consult with a skilled bankruptcy lawyer prior to filing. With numerous years of experience practicing bankruptcy law, New Jersey bankruptcy lawyer Robert Manchel can provide answers to any questions you may have about student loans or other debts you may have incurred. Call (866) 503-5655 now for a free consultation.