Understanding Student Loan Debt in Canada: A Comprehensive Guide to Discharging Student Loans Through Bankruptcy
Student debt is a growing concern in Canada, with the national average steadily inflating, making it difficult for millennials to establish a firm financial footstep post-graduation. The process of discharging student loans through bankruptcy in Canada is an option that many are considering, and this guide aims to provide a detailed explanation of the same.
The Rising Concern: Student Debt in Canada
According to recent statistics, the average student loan debt in Canada has surpassed $28,000 for bachelors degree holders and over $15,000 for college graduates. The duration for paying off student loan debt under the Canadian student financial assistance program averages between 9 and 15 years. Notably, Nova Scotia reports the highest debt percentage with an average student loan debt exceeding $40,000.
Discharging Student Loans Through Bankruptcy: The Basic Criteria
There are specific criteria to qualify for discharging student loan debt through bankruptcy. The primary condition is that the debt must have matured over seven years since the time of graduation and the due date of the loan. Understanding the age of your student loan debt is crucial before proceeding with bankruptcy.
Note: There are circumstances where the seven-year timeframe can be reduced to five years, given the debtor can demonstrate financial hardship.
Working With a Licensed Insolvency Trustee
Bankruptcy is regulated through the Bankruptcy and Insolvency Act and must be filed by a Licensed Insolvency Trustee. This professional can guide you through the process of debt relief, including discharging your student loan debt.
The Process of Discharging Bankruptcy
A sequence of tasks must be completed to discharge from bankruptcy. You, along with your Licensed Insolvency Trustee, will report your monthly income, make required payments, attend credit counselling, and provide your income tax information. Failing to complete these tasks will hinder your discharge process.
Student Debt and Graduation Status
Regardless of whether you graduated or completed your education, your student loan debt remains payable. However, there are debt relief programs available specifically designed to assist with student debt relief, irrespective of your graduation status.
The Range of Student Loans: Government Vs. Private
Most government student loans cannot be discharged through bankruptcy in Canada unless all qualifying criteria are met. In contrast, private student loans may be discharged through bankruptcy without the necessity to prove that the individual has been out of school for at least seven years.
Associated Costs With Student Debt Forgiveness
Filing a bankruptcy in Canada incurs certain fees, including filing fees and legal fees. These will be outlined by your Licensed Insolvency Trustee and can vary based on several factors such as the province you’re filing in, previous bankruptcy filings, and the number of assets available for liquidation to pay off the owed debt.
Weighing The Pros and Cons of Filing Bankruptcy
The process of filing for bankruptcy in Canada has its own set of benefits and drawbacks. When you file for bankruptcy, you’re granted immediate creditor protection, which means creditors can no longer contact you for debt or take legal action against you.
However, on the flip side, filing for bankruptcy will impact your credit ranking and will remain on your report for six years after the discharge of your first-time bankruptcy. In case of a second filing, this duration extends to 14 years.
Asset Liquidation During Bankruptcy
Filing for bankruptcy will require you to liquidate some of your assets. However, certain non-exempt assets, such as RESPs, RRSPs, one family vehicle up to a $5000 value, may be retained.
Conclusion: You’re Not Alone
While the process of discharging student loans through bankruptcy in Canada is possible, it’s important to meet the eligibility criteria and follow the guidelines for this specific type of debt. Working with a Licensed Insolvency Trustee can provide you with the necessary guidance and support to navigate this process. Remember, you don’t have to struggle with your student debt alone. There are strategies and professionals available to help you regain control of your financial situation.
Contact us today for a free, no-obligation, confidential consultation to learn more about the options available to you. You can reach our Debt Relief Specialists by phone at 1-877-879-4770, or request a call back at our contact us page.
