How Do Canadian Student Loans Work?

Canadian Student Loans and Bankruptcy

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Canadian Student loans debt will be eligible for discharge in bankruptcy if seven years have passed since the former student ceased to be a full or part time student.

In cases of undue hardship, a bankrupt may apply to the Court to obtain the discharge of the student loans after five years since the schooling. For the Court to discharge on hardship grounds, it must be satisfied that the debtor has acted in good faith and is expected to continue to experience financial difficulties.

Federal and provincial governments have implemented Canadian student loans programs to assist student in paying for higher education and training.

In most cases students benefit from the higher learning and training. Students are also eligible for interest relief, debt forgiveness and other relief. Because of this, many stakeholders recognize that the release of Canadian student loans in a bankruptcy should be subject to special rules, including a waiting period.

Currently Canadian student loans are not eligible for a discharge in a bankruptcy unless the student has been out of school for 7 or more years.

CAIRP (Canadian Association of Insolvency and Restructuring Professions), the governing body of Trustees in Bankruptcy, recommends that the student loan be eligible for a discharge in bankruptcy, if the student has been out of school for 5 or more years.

Note:The “hardship provision” will be available to those people whose date of bankruptcy was prior to the coming into force of this provision.

Does going back to school restart the 7 year clock?

The Court has interpreted the meaning of “ceased to be a full or part time student” in section 178(1) (g) to not include periods of time when the bankrupt was a student but received no student loans.  (Re Ledoux, 2005 SKQB 75, 8 C.B.R. (5th) 225). However, in January, 2015 In the case of Re Mallory, the court ruled that the 7 year clock restarts at the end of any period of schooling regardless of whether new loans were obtained.

“This site helped a lot and I think the trustees should have a booklet to give people for bankruptcy with a site to give them more information …thank you!” Anon, Nova Scotia