Bankruptcy and Student Loans in Ontario

Dealing with Student Loans Through Bankruptcy in Ontario

Navigating the intricacies of bankruptcy and student loans in Ontario can be a daunting task. The hefty expense of tertiary education, combined with the challenge of securing a job in one’s field after graduation, has led to an increase in the number of insolvencies tied to student loans. This article will guide you through the complexities of dealing with student loans if you find yourself unable to repay them.

The Predicament

Picture this: You exit university, diploma in hand, but are unable to secure a job with sufficient pay to cover your student loan repayments. What options do you have? The answer lies in Ontario’s bankruptcy laws.

Bankruptcy: An Option with Conditions

Bankruptcy in Ontario can aid in eradicating student loan debt, but certain prerequisites must be met:

 

  • A government-backed student loan can only be automatically discharged in a bankruptcy if you have ceased being a student for seven years. Not even a single class should have been attended during this period.
  • If you’ve been out of school for less than seven years but more than five, you can petition the court under financial hardship provisions. However, the court must be convinced that repaying your student loans will lead to severe financial distress and that you’ve made reasonable efforts to pay off your student loans before this.
  • Not all student loans will be discharged through bankruptcy, but it could still be beneficial. Clearing other debts might free up enough cash flow for you to handle your student loan repayments independently.

The Seven-Year Rule and Bankruptcy Law in Canada

In Canada, student loans are governed by specific regulations under the Bankruptcy & Insolvency Act. While bankruptcy eliminates most unsecured debt, such as credit card debt, there are special laws that regulate government-backed student loan discharge in bankruptcy.

Understanding the Seven-Year Rule

Section 178 (1) of the Bankruptcy & Insolvency Act in Canada excludes government-backed student loans if you’ve been a full-time or part-time student at any point in the past seven years. Simply put, your student loan debt will be eliminated if you:

 

  • Declare personal bankruptcy, or
  • Make a debt proposal to your creditors through a consumer proposal

 

However, if it has been less than seven years since you were a student, your government-backed student loan won’t be automatically discharged through bankruptcy or a consumer proposal.

More than Just Student Loans

But what if your debt extends beyond student loans? If you have other significant debts like credit card debts or payday loans, a bankruptcy or consumer proposal may still be a good option even if the seven-year waiting period doesn’t apply to you. Filing bankruptcy can help clear other debts and make repaying your student loan more manageable.

Consumer Proposal and Student Loans

A consumer proposal is an alternative that allows you to negotiate repayment terms with your creditors through a Licensed Insolvency Trustee for a fraction of what you owe today. Student loans can be included in a consumer proposal and are eligible for release if they meet the seven-year rule.

Private Student Loan Bankruptcy Issues

If your student loans are private bank loans like a student line of credit or student credit card debts, then these types of consumer debts are eligible for automatic discharge under the BIA regardless of their age. This is true for student loans that are not guaranteed by the Ontario or Canadian government. Private student loan debt in bankruptcy is treated like any other unsecured consumer debt. It is automatically discharged with no waiting period.

Student Debt Less Than Seven Years Old

If your student loan is less than 7 years old, then you still have student loan forgiveness options that can help make repayment of your student debt easier. Repayment assistance is available through the National Student Loan Service Centre and their Repayment Assistance Plan.

Eliminating Student Loan Debt

If you are encountering difficulties in paying your Ontario student loan, we can answer questions that will help you resolve student loans. Let us help you choose the correct solution to resolve your student loan debts.

Bankruptcy Canada provides student debt relief services in several locations. We offer the convenience of phone and video-conferencing services for additional areas.

In conclusion, dealing with bankruptcy and student loans in Ontario can be a complex process. However, with the right information and assistance, it’s possible to navigate these waters and find a solution that best suits your situation.

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