What are the Waiting Periods and How Does it Impact Student Debt?
They say that your student years are the best in your life.
But what happens when all your hard work, dedication, discipline and study pay off?
What happens when the partying, the self-discovery and the learning are over?
What happens when you come crashing down to reality?
Many Canadian graduates find that they complete their studies with a financial hangover that dwarfs any they may have encountered after their long nights partying as undergrads.
The cost of living in Canada is substantial, even for students.
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Some may be able to find part time work to offset the cost of living or get by with some extra help from their parents.
Others may not be so lucky.
As a result, many young Canadians graduate not only with substantial Student Loan Debt but with other debts such as credit card debts and debts from unsecured personal loans.
Many graduates assume that they’ll walk into high-paying positions when they pick up their catskins, but the unfortunate truth is that many graduates can only find employment in non-graduate jobs and over 4% of graduates do not find employment at all.
This can seriously exacerbate Student Loan Debt and other personal debts.
With more and more interest owing with every passing month, graduates may worry that they won’t be able to pay off their student debts.
But what are your options when it comes to Student Debt in Canada?
Can your Student Loans be discharged by Bankruptcy, or do debt-stricken graduates have to pursue other options?
Let’s take a closer look…
Can I file for Bankruptcy for my Student Loan Debt?
The good news is that there are options that can help you to prevent Student Loan Debt from subsuming your income and keeping you awake at night.
However, these kinds of debts are not like most commercial debts.
There are very specific laws pertaining Student Loan Debt in Canada that will need to be kept in mind when dealing with them.
For instance, a Debt Management Plan can be an excellent option for dealing with unsecured loans and credit cards incurred while studying.
It can seriously reduce the amount you pay in interest or even get your interest payments expunged completely.
Furthermore, it can consolidate these debts into a single monthly payment to make them much more manageable.
However, it is not possible to leverage this option against Student Loan Debt.
The act states that Bankruptcy may not be used in conjunction with:
“(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
It effectively means that they must adhere to set waiting periods before taking this kind of action.
Understanding Student Loan Waiting Periods
Your Student Loan Debt may survive a Bankruptcy or Consumer Proposal if you do not adhere to the legal waiting period as stipulated under the Bankruptcy and Insolvency Act.
The law stipulates that a seven year waiting period applies to Student Loan Debt in Canada.
This means that, under most circumstances, you need to wait until 7 years have passed after studying before you can leverage either a Consumer Proposal or Personal Bankruptcy against your Student Loan Debt.
When does the 7 year Student Loan Waiting Period start?
There is still much confusion among graduates as to when the 7 year waiting period comes into effect.
Some mistakenly believe that the 7 years begin when the student loan begins.
However, this is not the case.
The 7 year waiting period begins when you finish your studies.
Note that this applies whether you graduated or not.
The waters can be muddied, however, when we think about what actually constitutes an end date for your studies.
Many graduates view the end date of their education as either the date of the final exam of the last semester of their studies or the date they ceased attending school.
While either of these is technically correct, we recommend building in a safety margin of 3-9 months just to be on the safe side (assuming that your financial situation permits).
Hardship Provision: Does it apply to you?
If your financial situation is such that the prospect of waiting for 7 years is untenable, there’s good news.
You may qualify for a “Hardship Provision” which could allow you to undergo a five year waiting period rather than seven.
This means that if 5 years have passed since you completed your studies and your extreme financial hardship makes the prospect of paying off your Student Debts untenable, you may be able to get your debts forgiven early either through Bankruptcy or a Consumer Proposal.
Under Subsection 178 (1.1) of the Bankruptcy and Insolvency Act, insolvent graduates can appeal to the court for early forgiveness of Student Loan Debt under the following circumstances:
“(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.”
What does that mean?
In layman’s terms, this means that a Judge can make a decision as to whether or not to discharge your Student Loan Debt after 5 years based on your current financial circumstances, how responsibly you used the student loan money, what efforts you have already made to try and repay your Student Loan Debt and how much effort you put into completing your educational program.
This can make Student debt easier for struggling graduates to manage.
However, there are many who still argue as to whether or not Student Debt is treated fairly in Canada.
Understanding the difference between a Consumer Proposal and Bankruptcy
As long as your Student Loan Debts are over 7 years old (or 5 if you can demonstrate sufficient financial hardship) you can use either a Consumer Proposal or a Personal Bankruptcy to get them forgiven in part or entirely
A Licensed Insolvency Trustee will help you to review your options and help you to choose the right one for you.
In brief, a Consumer Proposal can write off up to 70-80% of your debts, eliminate all interest and charges and make your Student Debts far more manageable.
The Trustee will look at your circumstances and put together a proposal for repayment.
As long as a 51% majority of your creditors agrees to the terms, they will all be bound by them.
Under a Consumer Proposal you can be debt-free in as little as 5 years.
A Consumer Proposal will remain on your credit record for 3 years after it has been settled.
Bankruptcy, on the other hand, can get all of your debts forgiven, however, you may lose some of your non-exempt assets to benefit your creditors.
As long as you meet your obligations (which the Trustee will guide you through), your debts could be discharged within a year.
You can see a more detailed comparison of these two debt relief measures Here.
It’s important to note that both Bankruptcy and a Consumer Proposal can be leveraged against not only your Student Loan debt but any other commercial loans and credit cards that were taken out during the course of your studies.
Still not sure what’s best for you? We’re here to help!
With so many options available, it may be hard to know which option best suits your needs.
Fortunately, we’re here to help.
We’ve been doing this for over 20 years and have helped over 100,000 Canadians from all walks of life to take control of their debts and improve their household finances so that they can save, budget and live their lives totally free of debt.
If you’d like to know more about what we can do for you, call us today on (877)879-4770.
We will delighted to arrange a risk-free, zero-obligation and completely confidential callback.