Student Loans & Bankruptcy in Canada

Student Loan Debt & Bankruptcy in Canada

BankruptcyCanada.com

Table of Contents

Page 3:How Does Bankruptcy Impact Canadian Student Loan Debt?Page 7:Student Loan Bankruptcy: The Seven-Year RulePage 9: The Student Loan Bankruptcy Hardship Provision Page 13: Is Student Loan Debt Treated Fairly in Canada?


How Does Bankruptcy Impact Canadian Student Loan Debt?

• Canadian Student loans debt will be eligible for discharge in bankruptcy if seven years have passed since the former student ceased to be a full or part time student.

• In cases of undue hardship, a bankrupt may apply to the Court to obtain the discharge of the student loans after five years since the schooling.

• For the Court to discharge on hardship grounds, it must be satisfied that the debtor has acted in good faith and is expected to continue to experience financial difficulties.

• Federal and provincial governments have implemented Canadian student loans programs to assist students in paying for higher education and training.



• 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 most cases students benefit from the higher learning and training.Students are also eligible for interest relief, debt forgiveness and other relief.Because of this, many stakeholders recognize that the release of Canadian student loans in a bankruptcy should be subject to special rules, including a waiting period.



Currently Canadian student loans are not eligible for a discharge in a bankruptcy unless the student has been out of school for 7 or more years.CAIRP (Canadian Association of Insolvency and Restructuring Professionals), the governing body of Trustees in Bankruptcy, recommends that the student loan be eligible for a discharge in bankruptcy, if the student has been out of school for 5 or more years.Note: The “hardship provision” will be available to those people whose date of bankruptcy was prior to the coming into force of this provision.


http://www.cairp.ca/

http://www.cairp.ca/

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.


Does Going Back to School Restart The 7 Year Clock?

• The Court has interpreted the meaning of “ceased to be a full or part time student” in section 178(1) (g) to not include periods of time when the bankrupt was a student but received no student loans. (Re Ledoux, 2005 SKQB 75, 8 C.B.R. (5th) 225).

• However, in January, 2015 In the case of Re Mallory, the court ruled that the 7 year clock restarts at the end of any period of schooling regardless of whether new loans were obtained.


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.


The Student Loan Bankruptcy Hardship Provision

• 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.”


What is “Hardship”?

The court will consider your income and the benefits you received from your studies.If you would like to learn more about student loan bankruptcies please contact a government licensed insolvency trustee of Bankruptcy Canada by contacting our team today at 1-877-879-4770 toll free or contact us online.


https://bankruptcycanada.com/free-confidential-evaluation/

Is Student Loan Debt Treated Fairly in Canada?

For students struggling to pay for higher education or professional training, governments at the federal and provincial level have enacted programs to assist students with student loans.The reason for these programs is so the student can benefit from further learning and studies.Under these programs, students may apply for debts to be forgiven or to receive relief from interest charges.Student loans are subjected to strict laws and conditions in bankruptcy due to these programs and a waiting period must be reached before student loan debt can be discharged in bankruptcy.


https://bankruptcycanada.com/insolvency-blog/student-loan-bankruptcy/


• The current law dictates that student loan debt cannot be included in a bankruptcy discharge if the student has not been out of school for less than 7 years.

• In a hardship situation, the court can discharge the student loan debt, once five years has passed since the schooling, if the bankrupt has acted in good faith and will continue to experience financial problems such that the bankrupt will be unable to pay the debt.

• The volatile history of student loans makes it clear that the government and stakeholders are still wrestling with the best and fairest way to deal with student loans in a bankruptcy.



• One of the main reasons there is such difficulty in coming to grips with a fair and equitable system is the way in which the loans are granted.

• The Student Financial Assistance website lists the qualifications for getting a student loan.

• A major problem is that there is no requirement that the applicant must have a minimum grade point average nor is there a requirement that the person is taking a course that will give him/her a reasonable payback for the cost of the course.

• Because there is no requirement of a minimum grade point average many loans are granted to students, who do not have the academic qualifications to complete their selected course of studies.


https://www.canada.ca/en/employment-social-development/services/student-financial-aid.html


• In my practice, the overwhelming number of students I saw, who wanted their debt discharged in a bankruptcy, did not complete their studies and were in low-paying, often minimum wage jobs.

• Another problem I saw, at first hand, was the person who paid, for example, for a hairdressing course. The course was very expensive yet the pay for a qualified hair dresser is very low — at or close to minimum wage.

• These people cannot afford to pay back their student loans.• Some people say that these people abused their student loans.



• Others say that mistakes were made but that youth is the time to make and learn by mistakes.

• I feel that we put an unfair burden on these students by sentencing them to be pursued by credit collectors until seven years has passed before the student can seek debt relief in a bankruptcy.

• It is ironic that one of the issues being reviewed for change in this go-around of the review of Canada’s insolvency laws is the issue of responsible lending.



• The talking points produced are:• Credit grantor behaviour may also contribute to financial difficulty

for some creditors. For example, credit granting practices such as extending credit on onerous terms to individuals who are unable to meet their existing financial obligations can lead to higher rates of insolvency.

• Possible responses could include empowering the trustee or court to disallow the claim of a creditor where credit was extended improvidently or on unconscionable terms. Additionally, the lender could be required to repay payments made on such loans in the period leading up to a bankruptcy or proposal.


Economy & Finance

Student Loans & Bankruptcy in Canada