How student loans are affected by a bankruptcy in Canada can be quite confusing. The laws around bankruptcy Canada student loans have changed in recent years adding to the difficulty in knowing whether or not your student loans would be discharged in a bankruptcy. While we explain the general principles behind student loans, bankruptcy and consumer proposals, we recommend you contact a local Bankruptcy Canada trustee to discuss your particular student loan situation.
Student Loans & Bankruptcy in Canada
If you file bankruptcy in Canada a federally guaranteed student loan is only automatically discharged if the date of your bankruptcy is more than seven years from when you ceased to be a student. This rule was created to prevent student from incurring huge student loans, and then graduating and immediately going bankruptcy. You can read more about the legislation and how it works at student-loan-bankruptcy.ca
Please note that the seven year clock does not start when you get the student loan; it starts when you cease to be a student, which generally means when you graduate from school, or when you stop attending and leave school. It is the end of study date that matters, so you should contact your student loan lender to find out your exact end of study date.
Student Loan Debt and Your Options
If you have ceased to be a student for more than seven years when you file bankruptcy, your student loan will be automatically discharged along with all of your other debts, unless a creditor objects.
If seven years have not passed, you have the following options:
- Wait until seven years has passed, and then go bankrupt. This is often the best alternative, since the interest rate on student loans is generally reasonable. If your situation improves, you may not need to go bankrupt.
- If five years have passed, you can go bankrupt and then apply to bankruptcy court to have your student loan discharged under the student loan and bankruptcy good faith and hardship rule. There is no guarantee that the court will discharge your student loan.
- You could file a consumer proposal. If the student loan lender agrees, your loan is included in the proposal. There is no guarantee that they will agree.
You should contact a licensed bankruptcy trustee to review your options and determine how your student loan will impact your bankruptcy.