Student Loans, The 7-Year Rule and Your End of Study Date
If you’re thinking about filing for bankruptcy in Canada, it’s important to understand exactly how it will affect your finances.
There are various different types of debts and they are often dealt with differently.
For example, secured debts aren’t typically included in a personal bankruptcy, but unsecured debts are.
One of the most common areas of confusion concerning bankruptcy is what impact it has on student loans.
Many people remain unsure whether this type of credit is discharged by bankruptcy, so it’s essential to take a closer look at student loans, the 7-year rule and your end of study date.
By learning more about the impact of personal bankruptcy on student loans, you can determine whether or not filing for bankruptcy is the right course of action for you.
What are Student Loans?
For these purposes, the term ‘student loan’ refers to official loans issued by the Government.
These loans are generally administered by the National Student Loans Service Centre.
When looking at how bankruptcy affects student loans, it’s important to differentiate between these ‘official’ student loans and other forms of borrowing.
Many high street banks offer student accounts with overdrafts and loans specifically aimed at students.
Although these might be known as ‘student loans’, they aren’t official student loans and are not, therefore, covered by the specific student loan rules applicable to bankruptcy.
Instead, they are standard consumer credit and treated as either secured or unsecured debt when you file for bankruptcy.
Are Student Loans Discharged by Bankruptcy?
Official student loans can be discharged by bankruptcy but only in some situations.
For a student loan to be discharged by bankruptcy or a consumer proposal in Canada, the debt relief must occur at least seven years after your last study date.
If you make a consumer proposal or file for bankruptcy within seven years of your last study date, your student loans will not be extinguished, and you will remain liable to pay them in full.
What is Your ‘Last Study Date’?
If you have student loans and you’re considering filing for personal bankruptcy in Canada, you’ll want to confirm your last study date.
This will determine whether your student loans will be eliminated by your bankruptcy, so it’s an extremely important point.
Your ‘end of study date’ or ‘last study date’ isn’t necessarily the last time you attended school, college or university.
Instead, it’s the date upon which your course was deemed to officially end by the Government.
In some cases, this is the date of your graduation from a course.
Alternatively, your course may have had an official end date that occurred after your formal graduation.
Before you decide whether or not to file for bankruptcy, it’s important to find out what your official ‘end of study date’ is.
Once you know this information, you can calculate whether or not your last study date occurred more than seven years ago and, if so, whether your student loans will be extinguished if you move forwards with your bankruptcy or consumer proposal.
Remember – it isn’t just full-time or undergraduate courses that this applies to.
If you were a part-time student, you will still need to rely on your end of study date when calculating whether you are outside the seven-year restriction.
Overcoming the ‘Seven Year Rule’
In some situations, it may be possible to reduce the seven-year waiting period to five years.
However, this only happens following an application to the courts and is dependent on you proving that the ‘hardship provision’ applies to you.
To have your student loans eliminated by bankruptcy after five years, rather than seven years, you would need to show that:
- You have acted in good faith in relation to your student loans, e.g. you have attempted to pay them back.
- You have experienced financial difficulty, and will continue to do so, that will prevent you from paying back your student loans.
If the court feels that your case meets these requirements, they may decide to lower the waiting time from seven years to five years.
This would mean that if your bankruptcy occurs at least five years or more after your last study date, your student loans would be discharged, and you would no longer be liable to pay them.
It’s worth noting, however, that proving financial hardship in this context is fairly difficult, so successfully petitioning the courts to reduce the waiting period from seven to five years isn’t easy.
Should You File for Bankruptcy if You Have Student Loans?
Before you decide whether or not to file for bankruptcy, it’s important to assess your entire financial situation.
If you have student loans, these will certainly have an impact on your decision whether to engage in formal debt resolution, such as making a consumer proposal or filing for bankruptcy.
However, other types of debt, such as existing secured or unsecured credit, will also affect what type of debt solutions are right for you.
Due to the complexity surrounding student loans and bankruptcy, it’s important to access advice and guidance.
By talking to a licensed insolvency trustee, you can find out more about how student loans are dealt with during bankruptcy.
Furthermore, a licensed insolvency trustee can help you to understand exactly what impact filing for bankruptcy would have on your financial situation and your lifestyle.
Talk to a Bankruptcy Trustee Today
All bankruptcies and consumer proposals must be dealt with by a licensed insolvency trustee.
Although these professionals are sometimes referred to as ‘bankruptcies trustees’, they can actually provide advice and information regarding a wide range of debt solutions.
If you’re in debt and you’re struggling to manage your finances, a trustee can help you to find the most effective form of debt relief.
To talk to a trustee today or to learn more about filing for bankruptcy in Canada, contact the team at Bankruptcy Canada on (877) 879-4770.