NJ Student Loan Forgiveness & the Brunner Test

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A plausible solution for student loan debt is urgently needed as the dollar amount of outstanding college debt approaches $1.4 trillion. That astronomical number means that student loan debt is now second only to mortgage debt in our country.

Currently, money that was borrowed to pay for college is considered nondischargeable in a chapter 7 bankruptcy. This means that, for most people dealing with (what feels like) crushing student loan debt, there is essentially no way to get out from under what may be $50,000 + in debt.

Has the cost of college gotten more expensive?

The cost of four-year college tuition in New Jersey has increased by 41% in the last decade. Additionally, living on campus at a NJ college or university is now nearly 25% more expensive than it was ten years ago. These numbers are even higher for out-of-state students who attend college in New Jersey.

It now costs NJ students an average of $24,000 for ONE YEAR of college tuition, fees, room & board, books & supplies and living expenses.

With that being said, there are proponents of an idealistic plan for two and four year college tuition to be free. Opponents of this utopian plan believe that offering free college won’t fix the problem because the problem ultimately stems from wages being too low.

What other factors have caused the student loan debt crisis?

There is evidence that the largest group of people who’ve defaulted on student loans are those who are earning the lowest income post-college. Data indicates that some of these defaulted borrowers are struggling because they didn’t finish college, and therefore didn’t obtain a degree. This leads to difficulty finding a job that pays enough for them to pay off their loans. Although there are a few student loan repayment programs that are based on earnings, they need serious improvements if they are to make a dent in what is quickly becoming the “student loan crisis.”

Hopefully there will be positive changes coming to the process of paying for a college degree that enable more people to finish college without being bogged down by debt. Until then, the only way to rid yourself of your student loans through bankruptcy is by demonstrating “undue hardship.”

What is undue hardship?

Relating to student loan repayment, the only reason you may be able to discharge your student debt is if repaying your loans would prevent you from being able to do literally anything else, like pay bills, buy food, etc. In New Jersey, the three part Brunner test is used to determine if a debtor demonstrates undue hardship that is significant enough to justify a discharge of student loan debt.

What is the three part Brunner test?

New Jersey bankruptcy court will require you to prove that the three following statements are true as relating to your finances:

  1. You will not be able to maintain even the most minimal standard of living (for yourself and any dependents) if you have to repay your student loans. The answer to this must be based on your current income and expenses.
  2. There is sufficient evidence to prove that #1 (above) will prove to be true for all or most of your student loan repayment time period.
  3. You have made a good faith effort to repay your student loan(s).

Most courts are fairly strict when it comes to the Brunner test, however, if you feel that you honestly would qualify for a hardship ruling in your favor, it is worth discussing the matter with a NJ bankruptcy attorney. As your initial consultation will be free of charge, you have nothing to lose by making a phone call and learning more about your options.

 

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Is Unpaid College Tuition Dischargeable in Bankruptcy?

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Unless you’ve been living under a rock for a significant stretch of time, you probably already know that student loans are very challenging to discharge via chapter 7 bankruptcy. It’s been that way since the 197os when Congress began putting limits on when graduates could discharge their student loan debt.

Prior to 1976, it was possible to discharge any student loan debt via bankruptcy. However, because so many students were failing to pay back their student loans, a law was passed with the intention of protecting federal investments. Initially, the law stated that a student loan would not be eligible for discharge within five years of its conception.

Slowly, through a series of tweaks to the law over the next two decades, the five year restriction stretched to seven years. 1998 saw the time restriction completely lifted and, in 2005, an amendment to the law was written to include private student loans, making the discharge of any type of student loan virtually inconceivable.

While it isn’t completely impossible to discharge student loan debt, to do so you must be able to prove that paying back your loan(s) will cause you ‘undue hardship.’ Proving undue hardship is exceedingly difficult to do, and those who succeed typically have some kind of severe physical disability that prevents them from earning a living.

What if I owe money directly to the school? Can I discharge that type of debt?

Ah, now here’s any interesting quandary! As it turns out, students or graduates who paid their college expenses (tuition, room and board, supplies) without signing any kind of loan paperwork or promissory note, actually have a decent chance of discharging any past due payments.

The key to whether or not your particular debt is dischargeable in bankruptcy has everything to do with nuance. For example, if you at some point received a bill from your college and failed to pay it, you technically owe the college money but not in the form of a loan.

Therein lies the nuance. Unpaid college fees such as tuition are not the same as unpaid college loans wherein you borrowed money and had a written agreement in place stating that you agreed to pay that money back. Simply failing to pay your tuition bill doesn’t magically turn it into a loan.

If you owe money directly to an institution of higher education that was never in the form of borrowed money to be repaid at a later date, you should be able to include it in your bankruptcy case and have it wiped out with a successful discharge.

However, pay close attention to the wording that your college uses in the near future, as some institutions have begun to change their paperwork/billing in order to make unpaid debts look like they were actually loans. This is an attempt to conceal the fact that your debt is dischargeable if you file for bankruptcy. These practices are not above board and your bankruptcy attorney must be diligent when reviewing any documents received from the school’s billing department.

Do you have unpaid college tuition debt that you feel should be dischargeable based on the description contained in this article? Do you have student loans that are causing you a great deal of financial hardship? In either case, Veitengruber Law can help you determine the best option for you:  a chapter 7 or 13 bankruptcy case, loan consolidation, forbearance, debt negotiation and more. Call now for a free one hour consultation.

Image credit: Seth Sawyers

What Can I Do About My Non-Dischargeable Debts?

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Unless you’ve been living under a rock, you know that there are some debts that bankruptcy just can’t eliminate. Probably the most well-known “non-dischargeable” debt is child-support. If you’ve been court ordered to pay support funds to the mother or father of your child(ren) and have fallen behind on payments, filing for bankruptcy will not erase that debt.

The same goes for any court-ordered alimony. Rest assured that many people have attempted to find a loophole out of paying their child-support and/or alimony. Let it be said here that we believe in parents paying the child-support they have been ordered to pay.  At the dissolution of your marriage or relationship with your child’s partner, you didn’t dissolve your role as parent. Therein, you are still responsible for the financial support of your offspring.

However, there are cases wherein the “alimony” (spousal support) you’re paying isn’t officially court-ordered alimony at all. You may have fallen behind on helping your ex-spouse in making his/her car payment or house payment – both of which are considered to be property debts rather than alimony arrears. If this is the case, you may be able to discharge those debts in a bankruptcy case.

If you owe back payments on your child-support payments and/or court-ordered alimony payments, it is possible to reorganize your payments with a Chapter 13 bankruptcy. This will allow you to space out payments so they fit into your budget plan. Keep in mind that a Chapter 13 bankruptcy does not eliminate your debts, but rather has the goal of rearranging the money you owe to various people so that you can make the payments without going under.

Another debt that is very hard to escape is student loan debt. Millions of Americans are struggling to make ends meet and cannot manage to repay their student loans, even while working full time jobs. The cost of a college education is quite high – and when loans are taken out (and often times defaulted on multiple times), the interest adds significantly to the amount due. You can discharge your student loans if you can prove past a shadow of a doubt that you will never be able to repay them. To do so is extremely difficult, and those who succeed have almost always been permanently and significantly disabled.

If you have unpaid income tax debt, believe it or not, it is possible to have it completely discharged in a Chapter 7 bankruptcy, including interest and late or penalty fees that may have accrued over the years.

The bottom line is that there are several types of debt that are difficult to wipe out with a basic Chapter 7 bankruptcy, but some of them can be reorganized through a Chapter 13 bankruptcy. If you are unsure whether your debt(s) are eligible for a Chapter 7 or 13 discharge, speak to a bankruptcy attorney to learn more about the different types of debt, and where your particular debt falls.

Image credit: Steven Depolo

Preparing Your Child for Financial Success in College

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If you blinked and that little baby of yours is suddenly a junior or senior in high school, chances are good that both of you have started giving some thought to whether or not college is in the cards. If it is, there are a wide variety of fun and exciting new experiences right around the corner. Even if college is a year away, now is an appropriate time to start thinking about how your child handles money.

While s/he will most likely still rely on you for a large percentage of any money needed, college will be the first time s/he will have to make independent spending decisions. So, even though it’ll be your money, your child will be using it to form (hopefully) good financial habits that will last a lifetime.

There are many things you can do at this time that will either help or hinder your child when it comes to being financially successful. Here are a few tips:

  • Be ready for mistakes – As with anything our children do, making poor money choices in college is yet another learning experience. As a parent, be prepared to watch (from afar) your child goof up a few times at first. S/he may very well over spend and come crying to you for more money. If this happens, don’t come rushing to the rescue. Let your child feel just a little bit of the struggle that comes from making bad money choices. It is from that struggle that s/he will learn to make the right choice the next time around.

 

  • Put limits on those mistakes – While it is most definitely a good learning experience for college students to (for the most part) handle their own finances, as parents who are funding that experience, you can help them avoid utter disaster. Help your child obtain a low spending limit credit card or a debit card attached to an account that you share with him/her. Sit down with your child and review his or her spending habits periodically to go over any good and/or poor decisions.

 

  • Don’t be too generous – Although your instincts may tell you to load your college student’s bank account with plenty of money so they never have to want for anything, doing so is actually a really bad idea. Faced with open access to a large (to them) sum of money for potentially the first time in their lives can lead to an overwhelming urge to spend too quickly. Learning how to spend modestly is a skill that comes with time. Come up with a plan that will have you depositing spending money into their account more frequently, and in smaller increments. You can increase the amount of time between deposits along with the dollar amount gradually, as your child progresses and shows that s/he can handle more financial responsibility.

It’s also a good idea for your child to take on a very part time job during college, as long as s/he is able to do so without interfering with classes. While s/he will still need financial help from you, having an income of his or her own will further aid in solidifying the overall lesson you want them to learn: Budgeting is a life long skill that is just as important as all of the other information they’ll learn throughout their entire college experience.

 

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Home Ownership & Student Loan Debt: How They’re Connected

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Applying for a mortgage loan is akin to putting all of your financial cards on the table. Because the amount being borrowed is so high (in most cases), lenders will scrutinize all of your money decisions with a fine tooth comb. With that being said, it is best to wait to apply for a mortgage loan until such a time when your other financial obligations are low and your credit score is good.

However, everyone knows that life doesn’t always go as planned, and many millions of Americans are finding themselves paying off student loan debt years, sometimes decades after they have finished college. Many of these people may have in fact defaulted on their student loans, which can result in a legal judgment from the court.

Understandably, lenders are very wary of giving a loan to someone who has already defaulted on a loan in the past. They’d rather not take the risk of losing big-time money, and may pass you over for the next borrower ‘standing in line.’

So, what is a person to do if they are working hard to make good on an old student loan judgment? Must they wait until their loan is 100% paid off to pursue their dream of owning a home?

The real answer to this question is “maybe.” While that answer may not seem very encouraging, it’s better than an outright “no.” Lenders are going to look at more than just an outstanding student loan judgment (even if you are currently making steady payments on that loan via wage garnishment).

Another big factor that mortgage lenders are going to take into account is your overall credit score and your credit report. If you haven’t taken a look at your credit report recently, take advantage of the free report available to you at annualcreditreport.com. If you want to know your actual score, you will simply have to pay an extra $10.

If your score is at least fair, (above 630), that is proof that your student loan has not put a permanent albatross on your credit score, and moving ahead with applying for a mortgage loan is definitely within the scope of reasonable actions for you at this time.

If, on the other hand, your credit score is less than 630, you probably won’t get approved for a mortgage loan immediately, but you do have several options to help yourself move toward that goal.

First, make contact with your student loan lender(s). By reaching out to them personally, you’ll likely have a better chance of getting out of student loan debt much faster than you will on your current payment schedule. Many lenders have a rehabilitation program that helps debtors get back on track. If your lender is not amenable to speaking with you or negotiating with you, contact a New Jersey attorney who has experience dealing with both student loan debt and real estate. The right NJ attorney can negotiate your outstanding debts down to a much more manageable level – so much so that the fees associated with hiring an attorney will seem like a drop in the bucket.

Another thing you can do is apply for three secured credit cards and begin using them as soon as you receive them in the mail. Pay off the balances consistently every month for the next six months. This action alone will boost your credit score and help put you in position to get that mortgage loan, and get into the home of your dreams.

To get additional information and help negotiating your student loan debt, contact our office now for a free consultation. (732) 852-7295

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Retirement and Student Loan Debt: How They’re Connected

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To most of us, the word retirement brings to mind images of a renewed enjoyment of life – a time when we will finally be able to put work aside and possibly even find time to stop and smell the roses. Then again, the phrase ‘student loan debt’ isn’t one we usually associate with our golden years.

Unfortunately, these days, more and more older Americans are entering the retirement age bracket, but are unable to look forward to retiring with joy. Sadly, many older Americans are still affected by student loans they took out in their younger years, but were simply unable (for a variety of reasons) to pay off.

In fact, there are approximately two million Americans aged 60+ who are still struggling under the weight of unpaid school loans. According to the Federal Reserve Bank Of New York, this number has tripled since 2005.

Some older Americans are saddled with student loans that they themselves took out years ago in order to put themselves through college, while others took on the responsibility of cosigning a student loan for a family member (usually children).

Regardless of the reason for student loan debt among older Americans, attempting to repay an amount that is perpetually compounding due to high interest rates is exceedingly difficult for this particular group. Due to the fixed income that comes along with retirement, many retirees are finding it virtually impossible to stay up to date on their student loan debt.

What this means for retired debtors is that they will likely experience wage garnishment from their Social Security income. For an already struggling group, this can spell financial disaster.

Although retired student loan debtors truthfully do only represent a very small portion of all student loan debtors, the seriousness of their particular situation is quite dire.

In fact, wage garnishment being taken out of Social Security payments will likely push these older Americans into poverty. Working hard your entire life, only to spend your golden years without two pennies to rub together just doesn’t sit right with this New Jersey law office.

Can you relate to Carrie Mallik*? Age 62, Carrie is experiencing some declining health and a home loan that she can’t afford. On top of that, she owes over $100,000 on a $15,000 student loan from her youth, due to the astronomical interest rate when she borrowed the money. Unable to afford both her mortgage payment and her student loan debt, she is quickly finding herself in a hopeless situation. If you can relate to Carrie, it’s important that you know that there is hope for you.

Because of new legislation, people who took out student loans prior to July 2013 will now be able to refinance their student loans at significantly lower interest rates.

Finding a NJ attorney like George Veitengruber, who is experienced in and passionate about credit counseling and debt restructuring, is key to your success in this situation.

Veitengruber Law can help you secure your retirement and allow you to enjoy your golden years as planned. Call now (732) 852-7295.

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