Can A Private Student Loan Creditor Overturn A Consumer Proposal?
It’s important to know that student loans are similar to any other kind of unsecured debt.
They can easily be removed in a consumer proposal but there are rules that apply.
When you look at the 178 (1) (G) section of the Bankruptcy Act, you will soon see that the debts listed below are not discharged automatically when you take out a consumer proposal or when you file for bankruptcy.
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Canada Student Loans Act
When you take a look at the Student Loans act, you will soon see that the enactment of a province that provides loans to students where the bankruptcy date occurred before the date which the bankruptcy ceased to be full, or within seven years after the date which the bankruptcy ceased to a part-time student or full-time student.
The same rules apply if you are filing for bankruptcy or if you are filing for a consumer proposal.
Seven Years is Key
If you have been out of school for seven years or more then it’s true that if you do take out a consumer proposal, your debt will be removed.
If you have been out of school for six years, then your student loan might not be discharged though.
This is even if all of your creditors happen to accept your proposal.
If you want an example then Student Y might have $25,00 in debt.
This could be $15,000 in credit card debt and then a student loan, which totals $10,000.
The last date of the student’s study was 8 years ago.
The debt for this student would be eliminated because the loan is over seven years old.
Student X has the same amount of debt but the last date of her study was six years ago.
If more than half the value of the debt is accepted by the creditors then the proposal is accepted but the debt is not discharged because it is six years old.
If your student loans are under seven years old, your creditors will receive a prorated share of your payments.
This is similar to any other creditor which is not secured.
Once the proposal is over, they can then choose to pursue you for your debt.
The only exception here would be if the loan lender specifically agrees to the discharge of the debt as part of the proposal.
If they don’t vote, then the other creditors can easily approve the proposal but your loan will exist.
What are your Options?
So does all of this mean that you have no option if you have student debt?
Not at all.
If you are unable to pay your student debt, then it is entirely possible that a consumer proposal is the answer.
If you have other debts, such as unsecured bank debt or even credit card debt then your proposal will remove these debts, meaning that you are now able to afford your student loan.
If you need some help with your debt then we at Bankruptcy Canada can help by putting you in touch with a licensed insolvency trustee.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal