The rising costs of education in Canada have led many students to take on significant loan debts. This has resulted in a higher incidence of student loan bankruptcies and an increased need for student debt relief. Understanding the unique nature of bankruptcy and student loans can help those in financial distress navigate their options.
The Relationship between Student Loans and Bankruptcy
Student loan debt has a unique status under Canadian law. This uniqueness affects how it is treated in bankruptcy proceedings and consumer proposals, and it could also impact the debtor’s ability to obtain future student loans.
Discharging Student Loans in Bankruptcy
Contrary to popular belief, student loans can be discharged in a bankruptcy in Canada. However, this is only possible if the debtor has not been a student for at least seven years, as stipulated by the Bankruptcy and Insolvency Act. In cases of financial hardship, this seven-year period can be reduced to five years. However, debtors must prove they used their student loan in good faith and that repayment is causing significant financial difficulty.
Addressing Student Loans through Consumer Proposals
The seven-year rule also applies to consumer proposals. That means student debt will not be automatically discharged or released unless it has been more than seven years since the debtor attended school. However, lenders cannot collect on student debt while a debtor is in a consumer proposal due to the protection provided by the Bankruptcy and Insolvency Act.
Obtaining a Student Loan Post-Bankruptcy
Life after bankruptcy certainly poses challenges, especially for those considering returning to school. Those with a bankruptcy in their past may find it more difficult to secure a loan or qualify for financial assistance. While bankruptcy proceedings do not automatically disqualify applicants, it is necessary to disclose any such financial history when applying for a student loan.
Alternative Solutions for Student Loan Debt
For those experiencing financial hardship due to student debt, there are alternatives to making a consumer proposal or filing for bankruptcy. Here are three strategies that could potentially offer relief.
Seeking Better Terms from Your Lender
One approach is to negotiate better terms with your lender. This could involve asking for reduced monthly payments or a lower interest rate. Contact your lender directly to discuss potential options.
Understanding the Nature of Your Student Loan
It’s important to determine if your debt is technically classified as student debt. If you obtained your loan from a chartered bank, it may simply be a bank loan marketed towards students. If this is the case, you could potentially qualify for a wider range of debt-relief strategies.
Consulting a Specialist
Navigating the complexities of student debt can be challenging. If you’re unsure about how to proceed, it may be beneficial to consult with a Licensed Insolvency Trustee. They can provide expert advice and guide you through the available options.
Conclusion
Though challenging, managing student loan debt in the face of bankruptcy is not impossible. Understanding your options, seeking professional help, and exploring alternative solutions can significantly ease the process.
