Minecraft Server Crashing

My minecraft server, which has worked flawlessly since 1.5, has suddenly started crashing recently and lagging.

It keeps throwing this error as it crashes:

12.12 19:47:41 [Server] INFO Exception in thread "File IO Thread" java.lang.OutOfMemoryError: GC overhead limit exceeded

And sometimes when it crashes someone will be booted...

12.12 19:47:38 [Disconnect] User [19:47:38] [Server thread/INFO]: _________ has disconnected, reason: TranslatableComponent{key='disconnect.genericReason', args=[Internal Exception: io.netty.handler.codec.EncoderException: java.lang.OutOfMemoryError: GC overhead limit exceeded], siblings=[], style=Style{hasParent=false, color=null, bold=null, italic=null, underlined=null, obfuscated=null, clickEvent=null, hoverEvent=null}}

The server will show up on the server list, and it will show that everyone who was online at the time is still on the server. My friend has a server and it did the same exact thing to him. He has 1Gb of mem for his server and I have 512(both with good processors) In the past, the server has worked fine, even with 10 people on. Now it crashes anywhere from 2-5 people. I suspect some kind of memory leak or mojang changed something in the code which requires vastly more memory. note: The server view distance is still 10 as always.