In the prevailing modern era, where higher education is highly esteemed yet increasingly expensive, student loans have become a necessity for many. However, the looming burden of these loans often leads to financial stress and difficulties, leading to the question: are student loans dischargeable in bankruptcy in Canada? This comprehensive article aims to shed light on this particular aspect of Canadian bankruptcy law, while also exploring the various alternatives available for those struggling with student loan debt.
A Brief Overview of the Situation
Student loan debt is a pervasive issue in Canada, with the national average surpassing $28,000 for bachelor’s degree holders and over $15,000 for college graduates. A common solution for those grappling with such financial burdens is to seek refuge in bankruptcy. However, the rules surrounding student loans and bankruptcy are not as straightforward as one might hope.
Note: The concept of bankruptcy is regulated by the Bankruptcy and Insolvency Act in Canada, and can only be filed by a Licensed Insolvency Trustee.
Can Student Loans be Discharged Through Bankruptcy?
The answer to the question “are student loans dischargeable in bankruptcy?” is both yes and no. In Canada, the eligibility for discharging student loan debt through bankruptcy hinges on a few critical factors.
The Seven-Year Rule
The most notable condition is the “Seven-Year Rule“. This rule stipulates that student loan debt must be more than seven years old from the time of graduation or last study date for it to be eligible for discharge. This is a crucial factor to consider before proceeding with the bankruptcy process.
Exceptions to the Rule
There are exceptions to the seven-year rule, where the time frame may be reduced to five years if the debtor can demonstrate financial hardship. However, these exceptions are granted on a case-by-case basis and usually require proof that repaying the loan would cause undue hardship to the debtor.
The Bankruptcy Process
The bankruptcy process is a legal procedure overseen by a Licensed Insolvency Trustee. It involves a series of tasks that the debtor must complete to be discharged from bankruptcy.
Student Debt and Graduation Status
An interesting point to note is that your graduation status does not affect the obligation to repay your student loan. Whether you graduated or dropped out of school, you are still liable to repay your student loan. However, there are debt relief programs available designed to assist with student debt relief.
Types of Student Loans and Bankruptcy
The type of student loan you have also plays a significant role in determining its dischargeability. Most government student loans cannot be discharged through bankruptcy unless all eligibility criteria are met. However, private student loans may be discharged without the necessity of having been out of school for at least seven years.
Costs Associated with Student Debt Forgiveness
Filing for bankruptcy is not without its costs. The process includes filing fees and legal fees, which will be outlined to you by your Licensed Insolvency Trustee.
The Pros and Cons of Filing Bankruptcy
Like any crucial decision, it is essential to weigh the pros and cons before proceeding. Filing for bankruptcy offers immediate creditor protection and eliminates most of your unsecured debt. However, it also affects your credit ranking and requires you to liquidate some of your assets.
Conclusions and Recommendations
While it is possible to discharge student loan debt through bankruptcy in Canada, it is vital to meet the eligibility criteria and follow the guidelines for this specific type of debt. If you are struggling with student loan debt, it is recommended to reach out to a Licensed Insolvency Trustee to explore your options and create a plan that suits your needs
