How is Student Loan Debt Treated in a Consumer Proposal?

Navigating Student Loan Debt with Consumer Proposals

When the burden of student loan debt becomes overwhelming, a consumer proposal may be a ray of hope. This article will provide an in-depth analysis of how student loan debt is treated in a consumer proposal.

Introduction

Many individuals aspire to advance their careers by pursuing higher education. Often, this goal is achievable thanks to student loans. However, unforeseen circumstances such as health issues, inability to complete studies, or difficulties in securing a job in the chosen field can lead to a predicament where the student loan debt becomes unmanageable.

Understanding Consumer Proposals

A consumer proposal is an alternative to personal bankruptcy. It allows individuals to negotiate a compromise with their creditors to pay back a fraction of the total amount owed, extend the repayment period, or a combination of both.

Student Loan Debt and Insolvency

When an individual files for insolvency, student loans are treated differently compared to other debts. The treatment largely depends on the ‘end of study’ date, which refers to when the debtor ceased being a full or part-time student.

Special Treatment of Student Loans in Consumer Proposals

Here’s how student loans are treated in a consumer proposal based on the ‘end of study’ date:

  1. If the individual stopped being a student more than seven years before filing the consumer proposal, the student loans will be included in the proposal.
  2. If the individual stopped being a student less than seven years before filing the consumer proposal, the student loan debt will still be payable upon the completion of the proposal.
  3. If the individual stopped being a student less than seven years before filing the consumer proposal and the proposal explicitly provides for the compromise of the student loan debt, the debt can be compromised if the proposal is accepted by the majority of the creditors.

Factors Influencing the Inclusion of Student Loan Debt in Consumer Proposals

The inclusion of student loan debt in a consumer proposal is influenced by various factors. These include the duration since the debtor ceased being a student, the terms of the proposal, and approval from the majority of the creditors.

Understanding the ‘End of Study’ Date

The ‘end of study’ date is a crucial factor in determining how student loan debt is treated in consumer proposals. It’s important to verify this date with the government as any subsequent return to school after the initial loan can complicate the calculation of this date.

Case Study: Dealing with Student Loan Debt via Consumer Proposal

Consider a case where an individual, burdened with a student loan debt of $61k, stopped being a student in June 2020 and is considering filing a consumer proposal. Since it’s been less than seven years, the student loan debt would remain payable unless the proposal terms explicitly provide for the compromise of the debt and the proposal is accepted by the majority of the creditors.

Contacting a Licensed Insolvency Trustee

A Licensed Insolvency Trustee can provide valuable advice and guidance when planning to file a consumer proposal for managing student loan debt. They can provide an initial assessment of the situation and help identify the best course of action.

Conclusion

Dealing with student loan debt can be challenging, but a consumer proposal can be a viable solution. It’s important to understand all the nuances of the proposal and how the ‘end of study’ date impacts the treatment of the student loan debt.

FAQs

What is a consumer proposal? A consumer proposal is an agreement negotiated with creditors to pay back a portion of the total debt, extend the repayment period, or both.

How is student loan debt treated differently in a consumer proposal? The treatment of student loan debt in a consumer proposal depends on the ‘end of study’ date.

What is the ‘end of study’ date? The ‘end of study’ date refers to when the debtor ceased being a full or part-time student. This date significantly influences the treatment of student loan debt in a consumer proposal.

Who can help with filing a consumer proposal? A Licensed Insolvency Trustee can provide guidance and advice on filing a consumer proposal.

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