The Impact of Bankruptcy on Student Loans
When it comes to financial distress, declaring bankruptcy is often viewed as a last resort. One of the most common queries related to this drastic step revolves around student loans. The question that many debt-ridden individuals grapple with is: What happens to my student loans if I file for bankruptcy? To address this pertinent issue, we need to delve into the specifics of different types of student loans and the effects of bankruptcy on each of them.
Understanding the Types of Student Loans
Government-issued Student Loans
In many countries, such as Canada, the government provides student loans. These loans fall under the purview of the Canada Student Loans Program.
Bank-provided Student Lines of Credit
Apart from government-issued student loans, there are also student lines of credit provided by banks or other financial institutions.
Bankruptcy and Student Loans: The Connection
The impact of bankruptcy on student loans depends significantly on the type of loan in question.
Bankruptcy and Bank-provided Student Lines of Credit
A bank-provided student line of credit can be included in a bankruptcy. However, if there’s a co-signor involved, the situation changes. Banks sometimes require a co-signor for these loans. If you file for bankruptcy, the co-signor would still be liable for the debt.
Bankruptcy and Government-issued Student Loans
When it comes to government-issued student loans, the situation is a bit more complex. These loans can be included in a bankruptcy only if they are more than seven years old, i.e., if your end-of-study date is more than seven years ago.
The Concept of ‘End of Study’ Date
The ‘end of study’ date is a pivotal factor when considering the impact of bankruptcy on student loans. It can be a confusing concept, especially if a return to studies has occurred since the initial loans were taken out.
Hardship Applications
If your government-issued student loan is less than seven years old but more than five years old at the time of filing for bankruptcy, you might qualify for a ‘hardship‘ application.
The Role of a Trustee
When dealing with the complexities of bankruptcy and its impact on student loans, it’s advisable to have a conversation with a trustee. They can provide guidance on specific situations, including the status of a co-signor or the intricacies of the ‘end of study’ date.
Conclusion
Filing for bankruptcy is a significant decision, and understanding its impact on various aspects of your financial life, including student loans, is crucial. If you’re grappling with the question, What Happens to my Student Loans if I File for Bankruptcy, it’s advisable to seek professional advice.
Remember that while bankruptcy can provide a fresh start, the decision should be based on a comprehensive understanding of its implications.
Did You Know?
Here are some helpful facts about bankruptcy and student loans:
- Many individuals who file for bankruptcy can keep their homes.
- In certain regions, like Newfoundland and Labrador, RRSPs can be retained even after filing for bankruptcy.
- Many bankruptcy filers can keep their vehicles.
- Most bankruptcy cases are not published in newspapers.
- A student loan more than seven years old can be included in a bankruptcy.
- A consumer proposal is an alternative to bankruptcy that can only be filed with a licensed trustee in bankruptcy.
- In Newfoundland and Labrador, people aged 30 to 39 file for bankruptcy more than any other age group.
