Student Loan Treatment In A Consumer Proposal
How Is Student Loan Debt Treated In A Consumer Proposal?
You’ll naturally have many questions concerning the topic of student loan treatment in a consumer proposal.
Can the loan be struck off of your repayment obligations?
Are you an eligible candidate?
How does it impact the consumer proposal?
Here’s all you need to know.
Student Loans: The Government Guaranteed Unsecured Loan
The chief reason behind the confusion surrounding student loans stems from the fact that they are both a form of unsecured loan and a type of government guaranteed agreement.
Generally speaking, unsecured debts can be eliminated from your financial obligations when submitting a consumer proposal agreement or bankruptcy case.
However, student loans are a little less straightforward.
As per Bankruptcy & Insolvency Act states, under section 178.1.G, that student loan debts are not automatically discharged from the consumer proposal if they occur either:
(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.
This essentially means that if you finished your studies over seven years ago, your student loan will be considered an unsecured debt that can be eliminated from your record.
If, however, your studies concluded within the last seven years, they can chase you for the full amount owed – even if your creditors agree to the consumer proposal.
Students that funded their courses via personal loans and foreign students that used funding from their homelands before gaining Canadian citizenship will need to research their individual circumstances.
How Does Student Loan Repayment During Consumer Proposals Work?
When your consumer proposal is accepted, and the student loan is outside the seven-year limit, the student loan is completely removed from your payment obligations.
This can have a significant impact as trustees negotiate the best deal on your behalf.
If your student loan was within the last seven years, though, the student loan lender will receive a prorated share of the consumer proposal, just as any other unsecured creditor would receive.
The main difference from other unsecured creditors is that they have the authority to request further repayments to cover the entire cost of the loan.
Appreciating this factor can have a telling influence on your decision as to whether a consumer proposal is actually the best type of debt relief available.
For example, if you are left with student debts of $10,000 while simultaneously facing the negative fallout of filing a consumer proposal in Canada, the outcome might not meet your expectations.
Conversely, if your student debts were cleared alongside credit card debts, it would enable you to start the next chapter as desired.
Each case is individual, though, and it may be possible to secure an agreement to discharge the student loan directly from the student loan lender.
This is often an option for claimants that are getting close to the seven-year threshold, as well as individuals that state they will file for bankruptcy should the lender reject the proposal.
Of course, you need to make it worthwhile for the lender by offering a slightly bigger payment, but it can produce a better outcome for all parties.
If they accept to wipe the debt clear as a part of the consumer proposal, this is a permanent decision that brings closure.
Is A Consumer Proposal Worthwhile If Student Debt Isn’t Included?
When using a consumer proposal, getting student debt wiped from the record alongside the other forms of unsecured debt is the best solution.
However, even when your debts fall within the seven-year window, the consumer proposal may still help you build a better financial future.
Clearing the other debts may enable you to finally meet your student loan payments with relative ease.
Aside from increased suitability for your budget, it can aid the organizational elements.
However, you may still wish to consider bankruptcy, consolidation loans, and a range of alternative debt relief strategies.
Whether planning to use a consumer proposal or wanting to seek more information about the impact of your student loan or other debt relief strategies, our trustees are here to help.
To discover more, drop us an email today!