How Do You File for Undue Hardship Discharge of Student Loans in New Jersey

File for Undue Hardship

How do you file for undue hardship discharge of student loans in New Jersey? Get a comprehensive guide about this topic from Law Offices of Scott J. Goldstein, LLC. Call us for more information.

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Discharging Student Debt in Bankruptcy

Under Section 523(a)(8) of the Bankruptcy Code, student loan debt can only be discharged if repaying it would impose an undue hardship on the debtor and their dependents.

As the statute doesn’t define undue hardship, bankruptcy courts can develop their own definitions and measurements. This is one reason why it is very difficult to discharge student loans in bankruptcy.

This article will help you understand the process of filing bankruptcy and proving undue hardship for student loan debt. If you have further questions or wish to start your bankruptcy filing, experienced bankruptcy attorneys at the Law Offices of Scott J. Goldstein will be happy to assist you.

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How to Prove Undue Hardship for Federal Student Loans?

The Department of Justice issued new student loans bankruptcy litigation guidance in November 2022 that aims to make it easier and more accessible to discharge federal student loans.

To qualify for a full or partial discharge under the new guidance, your lawyer must convince the bankruptcy court judge that paying your student debt will impose an undue hardship on you.

To prove undue hardship, you must meet the following conditions:

Current Inability to Pay Student Loan Debt

To prove your inability to repay your student loan, you must show that your expenses exceed your income. If your income can cover your expenses and a portion of your debt, you may be granted a partial discharge.

Future Inability to Pay Student Loan Debt

To discharge student debts, you must also prove a long-term inability to repay it by demonstrating one or more of the following criteria:

You’re 65 of age or older.
You suffer from a chronic injury or disability.
You have been unemployed for at least five years of the last ten.
You didn’t obtain the degree you took the loan for.
Your loan has been in payment status for at least ten years after school.

Good Faith Attempt to Pay Student Loan Debt in the Past

There are many ways in which you can show that you tried to repay your debt but were unable to. For example, you may be able to prove good faith by showing that you made debt payments, applied for deferment or forbearance, or actively sought help in managing your debt.

A skilled bankruptcy lawyer with a proven track record in handling bankruptcy claims can help you prove undue hardship and obtain the long-awaited student loan discharge.

How to Prove Undue Hardship for Private Student Loans?

The undue hardship guidance provided by the Department of Justice and Educ only applies to federal student loans. For private student loans, the New Jersey Bankruptcy Court usually relies on the three-part test, usually referred to as the Brunner test, to determine undue hardship.

The Brunner test requires debtors to prove they:

Wouldn’t be able to maintain a minimal standard of living if forced to repay
Have made a good faith effort to repay the loan before filing for bankruptcy
Are struggling financially, and that situation is likely to persist in the future

The Brunner test conditions are fairly similar to the guidance issued by the federal government. However, it doesn’t provide clear criteria of what qualifies as minimal standard, good faith effort, or a long-term inability to repay. It remains under the judge’s discretion to determine your qualification.

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How to File for Student Loans Debt Discharge on Bankruptcy

Unlike other debts, Discharging student loans requires more than just filing for bankruptcy. So it’s important to seek assistance from a qualified personal bankruptcy attorney before you initiate the process.

Here’s how to file for undue hardship discharge of student loans in New Jersey:

Filing Bankruptcy

To discharge student loan debt, you must first file bankruptcy. Depending on your situation, you can choose between Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 involves selling your nonexempt assets, such as cash, bank accounts, and luxury items, to repay creditors. After that, the court will discharge the rest of your unsecured debt. Student debt, however, is not automatically discharged.
Chapter 13 allows you to reorganize your debt through a repayment plan so you can repay a portion or all of your debt within the specified period.

Initiating an Adversary Proceeding

Following your bankruptcy filing, you must initiate an adversary proceeding with the Bankruptcy Court against the U.S. Department of Education or the private lender of your loan.

To initiate the proceeding, you must fill out and file the adversary proceeding cover sheet and a Complaint to Determine Dischargeability of Student Loan Debt.

Submitting Attestation Form (for federal student loans)

The Attestation Form includes information regarding your income and expenses. This form is used to determine whether your expenses outweigh your income and demonstrate your inability to repay your student loan. You should file the attestation form with your local Assistant United States Attorney (AUSA), the representative of the Department of Education in the case.

If your attestation form proves undue hardship, the AUSA will recommend a full or partial discharge of your student loan debt to the court. A positive AUSA recommendation may expedite the process.

Potential Outcomes of a Student Loan Bankruptcy

At the end of the adversary proceeding, the court will decide whether or not to grant your undue hardship claim. If granted, your student loan debt will be discharged. In case of a partial discharge, you may be allowed to work out a repayment plan with your lender.

If your bankruptcy claim is denied, your attorney may advise you on alternative options, such as finding a suitable repayment plan or appealing the decision.

The Law Offices of Scot J. Goldstein Can Help

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Getting your student loans discharged in bankruptcy may be challenging but definitely not impossible. With the help of our experienced bankruptcy lawyers at the Law Offices of Scott J. Goldstein, you may be able to discharge your student debt. We can assess your case, guide you through the process, and represent you in court.