Should I File For Bankruptcy In Canada For My Student Loans?
When we were young, we subscribed to an assumed truth.
That if we wanted to do well in life, we needed to get good grades in school, go to college and get a degree.
We were told by teachers and parents alike that this was the key to landing a good job and starting on the path to a successful career.
We take on Student Loans willingly under the assumption that we’re buying a ticket to a better life on credit.
Upon graduating, however, many of us found that the reality doesn’t quite match up with our expectations.
We find ourselves starting our careers buried under an avalanche of Student Debt.
Over time, unpaid Student Debt can cast a shadow over your finances and become unmanageable.
Can filing for bankruptcy allow you to discharge Student Loan Debt?
What are the laws surrounding student loan debt and what is the “Seven Year Rule” for student loans and bankruptcy?
We’ll answer all of your questions in this post…
Understanding the rules around Student Debt and Bankruptcy
In order to understand whether Personal Bankruptcy can be used to write off Student Debt, we need to take a close look at the legislation pertaining to Bankruptcy in Canada.
Section 178 (1) of the Bankruptcy & Insolvency Act makes clear what debts can and cannot be discharged from Bankruptcy.
The section states that a Personal bankruptcy will not discharge:
“(g)A loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
(i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or
(ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student; or
(h) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (g).”
What does this mean for those who want to write off their Student Debt?
In simple terms, Student Loans cannot be written off within 7 years of the date you finish school.
Notice that this doesn’t specify when you graduate.
So if you left college without graduating, your Student Debt can still be written off by a Personal bankruptcy as long as you file at least 7 years after your studies end.
Understanding the 7 Year Student Loan Rule
When it comes to the 7 Year Student Loan Rule, there are a few common misunderstandings and misconceptions.
Some are under the impression that the rule applies 7 years after the Student Debt was incurred.
However, this is not the case.
The relevant date is when your studies ceased.
Let’s say you enrolled in college in 2005 and graduated in 2009.
The 7 year time period applies as of 2009 and not 2005.
As such, the graduate would be able to declare a Personal Bankruptcy any time after 2016 to discharge their Student Loans (as well as any other debts they may have incurred after graduating).
What about post-graduate studies?
Some make the mistake of assuming that, if they undergo post-graduate study that the 7 year period kicks in upon completion of their undergrad studies.
However, this is also a misconception.
According to the Seven Year Rule, you must not have undergone any studies at any academic institution for the past 7 years.
Even one part time class can prevent your Student Debts from being automatically discharged.
Understanding Hardship Provision
What if you’re struggling to pay off your student debts and less than 7 years have elapsed since you left school?
If five years have passed since your studies, you can apply under the ‘hardship provision’ to get your Student Loan Debt written off via Personal bankruptcy.
You may be able to sidestep the 7 Year Rule under the following conditions:
“(1.1) At any time after five years after a bankrupt who has a debt referred to in paragraph (1)(g) ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that
(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and
(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”
In plain English, this means is that you can apply to a Bankruptcy Court to get your Student Debt reduced or discharged completely after just five years if you meet certain conditions.
You need to be able to prove to the court that you’re facing ongoing financial hardship will prevent you from paying back your student loans for the foreseeable future.
You’ll also need to demonstrate that you have made every effort possible to repay your Student Loans including applying to any relevant repayment assistant programs.
You’ll also need to demonstrate that your Student Loan money was used appropriately and responsibly.
Understanding your options: How we can help
At BatkruptcyCanada.com, we’ve helped literally hundreds of thousands of Canadians just like you by ensuring that they understand all their available options.
We can put you in touch with a Licensed Insolvency Trustee who can advise you and guide you through every stage of your application.
If you were a student 7 years ago, they can help you to declare bankruptcy and ensure an automatic discharge for your Student Debts and any other debt that may be causing you distress.
If you were a student 5 years ago or more, they can help you to demonstrate that you are undergoing continued financial hardship which may qualify you for the Hardship Provision.
Find out more about how we can help you to liberate yourself from your debts. Call us today on (877)879-4770 to arrange a risk-free, zero-obligation and 100% confidential callback.