New Jersey Bankruptcy Law Blog

Bankruptcy may be an ideal way for debtors to eliminate most of their outstanding debt balances. However, it is rare to see student loan debts discharged through bankruptcy. For a judge to consider discharging student loans in a bankruptcy case, an individual would need to pass the Brunner Test. To pass this test, an individual needs to show that he or she put forth a good faith effort to repay what he or she owed.

Debtors will also need to show that paying back their student loan balances would create unreasonable hardship. Finally, it needs to be shown that the hardship is unlikely to end before the loan repayment period ends. It is important to know that there is no clear definition of hardship. Therefore, it is up to a judge to determine on a case-by-case basis whether an individual would be able to repay a loan balance now or in the future.

New Jersey residents who are struggling to make ends meet will likely know how persistent debt collection companies can be. While debt collectors are permitted to contact borrowers by mail or telephone, they must abide by strict rules laid down by the Fair Debt Collection Practices Act. The 1977 law does not allow debt collectors to call borrowers before 8:00 a.m. or after 9:00 p.m., and collection companies are required to comply when requests to cease contact are made in writing.

The FDCPA allows debt collectors to apply reasonable pressure to secure payment of unpaid bills, but they are not permitted to lie, make threats or use abusive language. They are also prohibited from divulging personal financial information to family members or employers. When their collection efforts are unsuccessful, debt collectors may sell debts to a third party or file lawsuits against borrowers to recover money they are owed.

Before people struggling with debt in New Jersey go forward with a bankruptcy, they typically want to know what the long-term effect of that action will be. Although bankruptcies present a negative item on people's credit histories, they still have opportunities to improve and maintain their credit scores as years go by.

Chapter 7 bankruptcies remain on credit histories for 10 years, but Chapter 13 bankruptcies drop off credit histories after only seven years. During either of these periods, people often see an immediate improvement in their actual credit scores in the first two years after filing. This happens because the legal action has resolved outstanding debts so that they no longer show as unpaid or past due.

According to a report from Clever Real Estate, Americans have twice as much credit card debt as they did in 2000. Households in New Jersey and throughout America have an average of $31,420 worth of debt, which is more than the average American salary in 1950. In that year, the typical American household had $533 in debt. Researchers say that credit cards are one of the three primary factors for such a significant increase over the past 70 years.

The report indicated that financial literacy and where people live play a role in how much they owe to lenders. In 2018, roughly 70% of borrowers didn't pay the full balance on their credit card debts, and they ended up paying $113 billion in interest and fees. The increase in credit card and other consumer debts has correlated with an increase in bankruptcy since the 1980s according to the report's authors.