When debt gets out of control, filing for bankruptcy is a way out for many people in New Jersey. While declaring bankruptcy can affect someone’s credit, it may be better in the long term to discharge debts before they default. It is thus wise to stop focusing on any negative stigma or emotions surrounding a possible bankruptcy decision and instead look at things pragmatically.

In every type of bankruptcy, some debts are considered dischargeable and others are non-dischargeable. Clearing dischargeable debts such as motor vehicle surcharges, gambling debts, bank overdrafts, lawsuit judgments, tax debts, medical bills and credit card bills can free up a person’s finances so he or she can better manage non-dischargeable debts.

Are student loans dischargeable?

In almost every case, student loan debts are non-dischargeable, though they can be reorganized through Chapter 13 bankruptcy to make them easier to pay off. It is thus still important for people who have filed for bankruptcy to figure out sound strategies for paying off their leftover student debts.

Alternative student loan repayment plans

One of the more effective approaches to managing student loan debt is to explore alternative payment plans that are compatible with a given circumstance. Investopedia points out one of these, known as a pay as you earn plan, that is available to people who can prove financial hardship. Someone who has already filed for bankruptcy should have no problems qualifying for this plan, which caps monthly payments at 10 percent of his or her income over 20 years.

Another plan that may help is an income-contingent repayment that calculates payments at a maximum of 20 percent of someone’s adjusted gross income. Other options worth considering include an extended repayment plan and a graduated repayment plan.