How Does Bankruptcy Impact my Student Loan Debt?
In some cases you will be able to include your student loan debt in a student loan bankruptcy, but you must meet certain conditions for your student loan debt to be included in your bankruptcy and eliminated when you receive your bankruptcy discharge.
Generally you can only include student loan debt in bankruptcy if you have not been a student for more than 7 years, or for less time if you meet the hardship requirements.
When you declare bankruptcy you will be ineligible to receive further funding from the Student Aid funding program in your province for a certain period of time.
In BC, the length of time you will be ineligible for funding is 10 years or 8 years if you declared bankruptcy under financial hardship conditions.
Student Loan Bankruptcy: The Seven-Year Rule
When you receive your bankruptcy discharge you will only receive a release from the obligation to pay off your student loans if you file for bankruptcy at least seven years from the day you stopped being a part-time or full-time student.
In other words, you can only eliminate student loan debt in bankruptcy if you stopped being a student more than 7 years ago.
If you were a student less than 7 years ago, your student loan debt cannot be included in your bankruptcy and you must continue paying your student loan debt or seek another option for getting out of debt.
The seven-year rule can be reduced to five years if the court finds that repaying your student loans will result in undue hardship for you.
The Student Loan Bankruptcy Hardship Provision
You might be able to apply to the court for an early discharge of your student loan debt if you have stopped being a full or part time student only five years ago if you meet the requirements of the “hardship provision.”
To have the court accept your hardship provision application you must convince the court that you acted in good faith to repay your student loans and have experienced financial difficulty that will continue that will make it a hardship for you to repay your student loan debt.
It will be at the courts’ discretion to grant you the hardship application to allow you to include the student loan debt in bankruptcy after 5 years and the court may decide to grant you a partial release of your debts if you demonstrate “hardship” at repaying your student loan debt.
What constitutes “good faith” does not have a clear definition although the court will consider the effort you made to repay your loan, how you used your student loan money, if you completed your education studies, and if you have taken advantage of repayment assistance programs that are available for students struggling to repay their debt.
What is “Hardship”?
There is no set definition of what hardship contains as each bankruptcy court will have it at their discretion to decide what “hardship” means for them.
Hardship is usually considered “continuing to pay the student loan debt after bankruptcy is a financial hardship.”
The court will consider your income and the benefits you received from your studies.