Bankruptcy and Student Loan Debt
With rising tuition fees and associated costs, many students leave Canadian universities and colleges with significant debt. As a result, student debt bankruptcies and the need for student debt help are more commonplace than you may think.
Whether a graduate or not, if you need help with student loan debt you should know that the usual consumer proposal and bankruptcy processes may differ slightly. That's because student loan debt is treated uniquely in the legislation, but it can typically be managed by debt strategies tailored to past students.
Are Student Loans Discharged in Bankruptcy?
The short answer is yes. As set out in the Bankruptcy and Insolvency Act, student debt is automatically discharged in a bankruptcy in Canada if you haven't been a student for at least seven years. That means attending any school.
The seven-year period can be reduced to five years in cases of financial hardship, but there is a burden of proof. You must demonstrate not only that you used your student loan in good faith (i.e. for education and/or related living expenses), but also that repaying your loan is causing significant ongoing financial difficulty.
Can Student Loans Be Settled in a Consumer Proposal?
Unless your loan provider specifically votes otherwise, the seven-year limit also applies to consumer proposals. That means your student debt will not be automatically discharged or released unless it has been more than seven years since you attended school.
Bear in mind, however, that lenders cannot collect on student debt while a debtor is in a consumer proposal due to the protection provisioned by the Bankruptcy and Insolvency Act. So, you may be able to expect a measure of student debt relief as part of a consumer proposal, but your student debt will still be there when the term of your proposal expires.
Can I Get a Student Loan After Bankruptcy?
Although there is life after bankruptcy, you may encounter some residual challenges. If, for example, you intend to enroll at school, but you have a bankruptcy in your past, you may find it more difficult to obtain a loan or qualify for financial assistance.
There is nothing stopping you from applying, but you must disclose if you've filed any proceeding under the Bankruptcy and Insolvency Act—including consumer proposals and bankruptcy (discharged or undischarged).
If you have pursued insolvency proceedings in your past but it didn't relate to student debt in any way, you may find that your ability to obtain a student loan has not been affected. The final decision will be made by the lender or awarding body.
Alternative Student Loan Advice and Strategies
If your student debt is causing financial hardship, you may be able to seek alternative remedies without having to make a consumer proposal or resort to bankruptcy.
1. Seek Better Terms from Your Lender
You may be able to apply for some type of debt relief from your lender, whether it's reduced monthly payments or a lowered interest rate. The only way to find out is to contact your lender directly.
2. Check That Your Student Loan Really is a Student Loan
Student loan debt is governed by specific laws—but is your debt actually student debt? If you obtained your loan from a chartered bank, it may simply have been a bank loan marketed towards students. If that's the case, you may qualify for a much wider range of debt-relief tactics, strategies, and processes.
3. Speak to a Specialist
Dealing with significant debt is a challenge at the best of times. When you add the special terms and legislation that governs student debt, the situation becomes more complex. If you're not sure how to proceed, your first step should be to connect with an MNP LTD Licensed Insolvency Trustee to explore the options available to you.