Student Loans in Insolvency Proceedings
When filing bankruptcy or a consumer proposal, different types of debt are treated in different ways.
Some debts will automatically be included in a discharge, while others might or might not be, depending on what type of debt it is and a few other conditions.
Student loans are one type of debt that is treated differently and is affected by the age of the loan.
Student loans that are more than seven years old (from when you stopped being a student) are treated differently to loans that are younger than seven years.
Most unsecured debts are included in discharge during insolvency proceedings.
However, student loans are sometimes an exception, so it’s necessary to understand when your student loans can be eliminated and when they will stay.
Which Student Loans Stay?
When it comes to student loans, the date is all-important.
If you stopped being a student within seven years of the date that you file bankruptcy or a consumer proposal, any student loans from that time will remain, and you will still be responsible for paying them.
When you are considered to no longer be a full-time or part-time student might not be as clear cut as you think.
The date that you think you stopped being a student could be different from the official date that is used, which could make things tricky if it has been around seven years since you finished your education.
There are exceptions to the seven-year rule, which might apply in cases of hardship.
If it has been more than five years, but less than seven years since you were a student, it’s possible to make an application to the bankruptcy court to discharge the student debt early.
To be granted a discharge, it’s necessary to show that you acted in good faith regarding your student loan and that you will face financial hardship if the student loan isn’t discharged.
Hiring someone to provide legal counsel will help you if you decide that this is the best route to take.
The rules on student loans apply to loans granted under the Canada Student Loans Act, the Canada Student Financial Assistance Act, the Apprentice Loans Act, or provincial law providing student loans.
Private loans that are given outside of these acts are treated differently, even if they are used to fund your studies.
If they are unsecured loans, they would most likely be included in your discharge in a bankruptcy or consumer proposal.
When you file bankruptcy or a consumer proposal, a stay of proceedings stops collection on your loans.
However, any student loans that still exist will continue to accrue interest.
Bankruptcy or a consumer proposal could help you if you have overwhelming debts, even if some of your debts are student loans.
However, it might also be worth considering other solutions if you have student loans that are less than seven years old.
A trustee can offer you advice on which debt relief solutions could work for you.