Consumer Proposal and Student Loans

Navigating the Path of Student Loans through Consumer Proposals

Navigating the financial aftermath of higher education can be a daunting task and student loans can often feel like an insurmountable hurdle. However, solutions such as a consumer proposal provide a viable means to manage and overcome student debt. This article explores the intricacies of student loans and consumer proposals, offering insight into the possibilities and limitations of this approach.

Understanding the Scope of Student Loans

In the pursuit of post-secondary education, many Canadians rely on financial aid in the form of government student loans, e.g., British Columbia Student Aid, and private loans from banks and other financial institutions. While these loans can make education accessible, repaying them can often prove challenging, leading to a rise in student debt.

The Rising Tide of Student Debt

Given the escalating costs of tuition, books, and other school expenses, it is unsurprising that student debt is on an upward trajectory. This increase in student debt is becoming unmanageable for many individuals, leading to a growing need for effective debt relief options.

Bankruptcy and Student Loans

One potential avenue for managing student debt is through bankruptcy. However, the impact of bankruptcy on student loans depends on the type of loan and the timing of the student’s departure from education.

Personal Bankruptcy and Private Loans

Personal bankruptcy can eliminate most unsecured consumer debt, which includes student credit cards, lines of credit, or other private bank loans used to finance education. Regardless of when these debts were incurred or how much time has elapsed since the completion of studies, these types of debts can be cleared by filing for bankruptcy.

Government Student Loans and the Seven-Year Rule

Government-issued student loans, however, abide by a different set of rules. As per section 178(1) of Canada’s Bankruptcy and Insolvency Act, these loans can only be discharged through bankruptcy if at least seven years have passed since the individual ceased to be a student. This condition, known as the “seven-year rule”, applies regardless of whether the student was studying full-time or part-time.

Consumer Proposals and Student Loans

For those hesitant to file for bankruptcy, a consumer proposal offers a viable alternative. This procedure allows debtors to negotiate with their creditors, through a Licensed Insolvency Trustee (LIT), to pay a reduced sum that would eliminate their debts. However, just like in bankruptcy, the seven-year rule applies to consumer proposals for government-guaranteed student loans.

Advantages of Consumer Proposals

Despite the limitations imposed by the seven-year rule, consumer proposals still present several benefits when dealing with student loans. Firstly, they enable the reduction or elimination of other forms of unsecured debt, such as credit cards and lines of credit, which can make the repayment of student loans more manageable. Additionally, during a consumer proposal, debtor protection under the Bankruptcy and Insolvency Act prevents lenders from collecting their dues.

Securing a Student Loan Post Bankruptcy or Consumer Proposal

Filing for bankruptcy or making a consumer proposal does not necessarily preclude individuals from securing a student loan in the future. However, applicants must disclose any proceedings under the Bankruptcy and Insolvency Act, and lenders may request additional information. The specifics of the bankruptcy or consumer proposal, as well as the amount of time that has passed since leaving school, may factor into the eligibility criteria for federal or provincial government loans.

Seeking Assistance for Student Loan Debt

When struggling with student loan debt, it is crucial to consult with debt experts such as Bankruptcy Canada. Licensed Insolvency Trustees can evaluate your financial situation, recommend solutions to manage your student loan debt, and guide you through the process of bankruptcy or a consumer proposal.


Navigating student loans and consumer proposals can be complex, but understanding the rules and regulations can help individuals manage their student debt more effectively. With the assistance of financial experts and the right strategy, overcoming student debt is an achievable goal.

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