Student Loans: The 5-Year Hardship Provision

The 5-Year Hardship Provision Allows You to Discharge Student Loan Debt Early

When filing for bankruptcy or a consumer proposal, it’s important to understand exactly how the outcome will reshape your financial situation.

Student loans are a common source of confusion, especially as most people are unaware of all aspects, such as the five-year hardship provision.

Here’s all you need to know.

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The Traditional 7-Year Student Loan Rule

Anybody that’s thinking about filing for bankruptcy in Canada should know that this form of debt relief does not cover all financial obligations.

Debts are commonly broken into secured or unsecured debts, and only the latter can be withdrawn from the record.

However, student loans are a little different as they are a form of unsecured loan, but will be government-guaranteed.

Section 178.1.G of the Bankruptcy & Insolvency Act (BIA) states that student debts are automatically discharged unless they are:


(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.


So, generally speaking, the rules are that student loans can be discharged during the bankruptcy process if you concluded your studies at least seven years ago.

However, another solution may be possible courtesy of the five-year hardship provision.

The 5-Year Hardship Provision

The five-year hardship provision relates to a clause aimed to support individuals that finished their studies between five and seven years ago.

When used, student loans that are five or six years old can be discharged from the bankruptcy outcome in the same way that they would usually be included after seven years.

Section 178 of the BIA also states that bankruptcies and consumer proposals can reduce the timescale from seven years to five years if:


(i) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and

(ii) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.


The ‘good faith’ part can cover several aspects relating to the debt you acquired as well as your subsequent actions in the years since completing your studies.

Contributing factors include but are not limited to:


  • Whether you used the funds to finance your studies or personal recreation;
  • Whether you completed your studies;
  • Attempts to use a Repayment Assistance Plan or other government schemes;
  • Current employment.


Even if you acted in good faith, you’ll need to show that the monthly repayments would cause financial hardships.

Each case is analyzed individually, but you can expect the decision to go your way if the payments will prevent you from paying rent or leading a financially responsible future.

Getting Help With The Student Loan 5-Year Hardship Provision

If you are about to enter a bankruptcy procedure, it can be assumed that you will encounter some financial hardship.

Therefore, with the right Trustee and financial behind you, arguing the case to include student loans under the five-year hardship provision will often bring the desired outcome.

Bankruptcy Canada can help you with this assignment, along with all other aspects of filing for bankruptcy.

To learn more, call today on (877) 879-4770.

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