Are Student Loans Forgiven In A Consumer Proposal?
Are Student Loans Forgiven In A Consumer Proposal?
You’re not alone if you’re dealing with student loans that have piled up over the years. You can compare student loans to that of all unsecured debts. You may be curious to know: “Are Student Loans Forgiven in a Consumer Proposal?” The answer is, yes, they can be eliminated in a consumer proposal.
However, you should be aware that there are special rules that apply to government-guaranteed student loan debt. Specifically, section 178 (1)(g) of the Bankruptcy & Insolvency Act states that the following debts are not automatically discharged in a bankruptcy or consumer proposal:
Any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred:
(i) Before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or
(ii) Within seven years after the date on which the bankrupt ceased to be a full- or part-time student
The same rules will apply no matter if you’re filing a consumer proposal or filing bankruptcy for student debt in Canada.
A Consumer Proposal in Detail
Your money problems can be solved with a consumer proposal if you have a good income and assets you would like to protect. A consumer proposal is specifically for individuals with insurmountable debts. It’s a process that helps you come to an agreement with your creditors. The premise is that you propose an offer, telling them that you can’t afford to pay your debts, but that you can afford a certain amount.
If they accept your proposal, you will repay your newly agreed debts however you like. The benefit of a consumer proposal is that you can reduce your overall debts and avoid bankruptcy. The downside is that there’s no guarantee your creditors will accept it.
What it All Means (Seven Years is the Key)
It can be challenging to understand these terms and what it all means if you’re not a lawyer. Therefore, below is a translation of the seven-year rule for student debt:
- If you have been out of school for more than seven years, your student loan will be eliminated in a consumer proposal.
- If you have been out of school for less than seven years, your student loan may not be automatically discharged, even if all of your creditors accept your consumer proposal.
An Example to Clarify
One former student (A) has roughly 25,000 dollars in debts, which is a mix of credit card debts and a Canada student loan). Let’s say this person was last in school studying eight years ago. They could file a consumer proposal and, if accepted, the student debt would be eliminated because those student loans are more than seven years old.
Now, let’s say another former student (B) has identical debts except that the last date of study was six years ago. If more than half of the dollar value of the creditors accepted the proposal, the proposal was accepted. The difference is that because it is six years old, not more than seven, the student debt for this person is not discharged.
Like any other creditor would receive, when your student loans are less than seven years old, your creditors still obtain a prorated share of your consumer proposal payments. However, it’s vital to make a note that once the proposal is over, they can pursue you for the rest of the money that they are owed.
The only exception to this would be if the student loan lender specifically agreed to the discharge of the student loan as a term of the proposal. If they simply don’t vote, the other creditors can approve the proposal, but the student loan continues to exist.
In summary, the student loans will only be discharged in a consumer proposal if the student lender votes to accept the proposal, and they’re less than seven years old.
Dealing with Newer Student Loans
The good news is that you still have options if your student loans are newer. A consumer proposal may be your best choice if you can’t pay your student debt.
You might be able to afford your monthly student loan payments if you file a consumer proposal that will eliminate other debts such as credit card and unsecured bank debt.
Another option is to ask your student loan lender, up front, to agree to discharge your student loans in full as part of the proposal. You may be thinking to yourself, why would they do this? Well, if you’re close to the seven-year mark and would otherwise file bankruptcy anyway, and you can offer slightly more as an incentive, they may agree to your offer. You will both be better off, so getting them to accept is a realistic option to consider.
Struggling with Student Debt?
Did you know that only 34 percent of Canadian students pay off their student loans within three years of graduation? For the remaining 66 percent, it will likely take you upwards of six years to be completely debt-free. Being in student debt is a highly problematic situation that can cause you a lot of unwanted stress and strain.
It can be overwhelming and frustrating to have a lot of student debt hanging over your head. If you’re struggling with student debt, then it’s a wise choice to speak with a Licensed Insolvency Trustee about your options. They can review your specific situation and provide debt relief solutions that will be most suitable for you.
At Bankruptcy Canada, we have been online for over 20 years. We are proud to have helped Canadians from every walk of life get a fresh financial start. Why wait any longer to make positive financial decisions and changes that can benefit you over the long-term? Contact us today at Bankruptcy Canada so we can answer any questions you have and walk you through the next steps.