In most cases, you cannot file bankruptcy on student loans in New Jersey because bankruptcy protection does not apply to student loan debt. A special federal exclusion means that those obligations must still be paid even after other debts are discharged in a Chapter 7 proceeding. However, New Jersey residents who face desperate financial circumstances might be able to relieve their student-loan burden if they meet certain standards.

If a borrower can prove that failing to cancel educational debt creates an undue hardship, federal law permits these debts to be discharged. Courts usually look at the following three factors to determine if an undue hardship exists:

• Standard of living — To qualify for an undue hardship exception, you must seek authorization from the bankruptcy court. A judge reviews your financial situation and determines how much money is necessary to maintain a minimal standard of living based on your particular circumstances. Should your student loan payments make it impossible to meet basic needs, you might obtain relief.
• Repayment efforts — As student-debt discharge is a departure from the standard rules, courts require debtors to have made every possible effort to repay their loans.
• Financial prospects — In many cases, the most important review concerns whether the individual seeking debt discharge will improve their financial situation in the coming years. Canceling someone’s loan obligations is a significant, permanent step, so courts look to see whether special circumstances are present that would prevent future debt repayment. This can be something like a long-term health problem that limits the income that the applicant will earn.

As the burden of proof is on the borrower, demonstrating these factors can be a difficult task. Consulting with a dedicated bankruptcy attorney can help you understand the bankruptcy process and assess whether you might qualify.

The Law Offices of James C. Zimmermann assists New Jersey residents who are struggling with student loan debt and other types of financial problems. With more than 25 years of bankruptcy experience, I work with individuals and families to identify workable solutions. Call me today at 973-764-1633 or contact me online to schedule a free initial consultation at one of my office locations in Vernon, Wayne, Pompton Lakes and Hackensack.