Understanding Student Loans & The 7-Year Rule
Student loans are a crucial element in the academic journey of many students across Canada. However, the rules and regulations associated with these loans can often be complex and confusing. One of the most misunderstood aspects of these complexities is the 7-year rule attached to student loans in the context of bankruptcy.
The 7-Year Rule: A Simple Explanation
According to the Bankruptcy and Insolvency Act, specifically section 178. (1) (g), student loans cannot be discharged in a bankruptcy or consumer proposal unless certain conditions are met:
- (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;
In simpler terms, for a student loan to be discharged in bankruptcy, the individual must have ceased being a student for a minimum of seven years.
Key Points to Note
It’s important to understand the specifics of this rule to avoid any confusion or misinterpretation. Here are some crucial points to bear in mind:
- The 7-year period starts from the date of ceasing to be a student, not from when the loan was taken.
- If you return to school, even part-time, the 7-year waiting period may reset.
- This rule applies to both bankruptcy and consumer proposals.
It’s possible to reduce the waiting period to five years if you can demonstrate financial hardship, but this involves a court process.
Consulting with a Professional
Given the complexities of the 7-year rule, it’s advisable to consult with a licensed bankruptcy trustee if you’re considering filing for bankruptcy or a consumer proposal while having student loans. They can provide advice tailored to your specific situation, including determining your “end of study date.”
Conclusion
Filing for bankruptcy with student loans can be a complicated process, especially given the intricacies of the 7-year rule. However, with a clear understanding of this rule and by seeking professional advice, you can navigate this process more confidently and make informed decisions about your financial future.
Remember, the goal is not just to overcome your current financial challenges but also to establish a solid foundation for your future financial health. So, take the time to understand all aspects of your student loans, especially the rules related to bankruptcy, and seek professional advice when needed.
