Discharging Student Loans Through Bankruptcy

How Bankruptcy Can Help Discharge Student Loans

Student loans can be a daunting reality for many Canadians. The national average for student loan debt has escalated significantly in recent years, surpassing $28,000 for bachelor’s degree holders and over $15,000 for college graduates. The average student loan debt in Nova Scotia is even higher, exceeding $40,000. With such staggering figures, it’s clear why many millennials are struggling to find their footing post-graduation. This article aims to provide an in-depth understanding of how to navigate discharging student loans through bankruptcy in Canada.

Understanding Eligibility for Discharging Student Loans Through Bankruptcy

The road to discharging student loans through bankruptcy in Canada involves meeting certain criteria. Primarily, the student loan debt must be more than seven years old since the time of graduation and the money has become due. Determining the age of your student loan debt is crucial to ascertain your eligibility for discharge before proceeding with the bankruptcy process.

In some cases, the seven-year period can be reduced to five years if you can demonstrate significant financial hardship. It’s vital to prove that your student loan was used for education and living expenses and that repaying it is causing significant financial strain. Since bankruptcy is regulated through the Bankruptcy and Insolvency Act, only a licensed insolvency trustee can file for it.

The Bankruptcy Discharge Process

Once you begin the bankruptcy process with your licensed insolvency trustee, there are several tasks you need to complete to be discharged from bankruptcy. These tasks include reporting your monthly income (the more you earn, the more your bankruptcy will cost you), making payments, attending credit counseling, and providing your income tax information. Failure to complete these tasks means you will not be discharged, and your debt will persist.

What If I Didn’t Graduate?

Even if you didn’t graduate, you’re still obliged to pay off your student loan debt. Fortunately, there are debt relief programs tailored to help with student debt relief regardless of your graduation status.

Can All Types of Student Loans Be Forgiven Through a Bankruptcy Filing?

Most government student loans cannot be discharged through bankruptcy in Canada unless all criteria are met. However, private student loans may be discharged through bankruptcy without the need to prove that the individual has been out of school for at least seven years.

The Costs of Student Debt Forgiveness

Filing for bankruptcy in Canada does come with associated fees, which include filing fees and legal fees. These will be outlined by your licensed insolvency trustee. The amount can vary depending on several factors, including the province in which you’re filing for bankruptcy, whether you’ve filed for bankruptcy previously, and the number of assets that can be liquidated to pay off the debt owed.

Pros and Cons of Filing for Bankruptcy

Filing for bankruptcy in Canada comes with both benefits and downsides. When you file for bankruptcy, you’re granted an automatic stay of proceedings, which means you are given immediate creditor protection. Your creditors can no longer contact you for debt or take legal action against you.

However, filing for bankruptcy will affect your credit ranking and will stay on your report for six years after discharge if it’s your first time filing. This period extends to 14 years if you’re filing for the second time. You’ll also need to liquidate some of your assets, but not all. Some non-exempt assets include RESPs, RRSPs, one family vehicle up to $5000 in value.


While it’s possible to discharge your student loan through bankruptcy in Canada, it’s important to meet the eligibility criteria and follow the guidelines for this specific debt. Working with a licensed insolvency trustee can help you navigate this complex process and provide a supportive system to get you back on track. If you’re struggling with your student debt, remember that you don’t have to do it alone. Reach out to a professional for a confidential consultation to explore the options available to you.

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