Guest Commentary by Douglas Hoyes, BA, CA, CIRP, CBV, Bankruptcy Trustee
The main reason for declaring bankruptcy in Canada is, obviously, to deal with your debts. Bankruptcy isn’t a “free ride”, you have duties to perform while bankrupt, but if you complete your duties you can expect most debts to be eliminated. I say “most” debts, because certain debts don’t get automatically discharged including certain student loans.
Section 178 1(g) of the Bankruptcy & Insolvency Act states that the following debts are NOT discharged when you file bankruptcy in Canada:
(g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
(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 other words, if a government guaranteed student loan is less than seven years old when you go bankrupt, it will not be automatically discharged. This rule exists to prevent a student from incurring huge student loans, and then declaring bankruptcy the day they graduate to eliminate those loans. Now, you must wait seven years from when you leave school before your student loans are discharged in a bankruptcy.
The same rules apply in a consumer proposal. Student loans are only discharged if you have ceased to be a student for seven years before you file your consumer proposal.
However, despite that rule, that hasn’t stopped a certain Very Big Bank in Canada from sending letters to former students who have filed consumer proposals. They’ve been doing it for years. (Here’s an article I wrote in February, 2011 about this Student Loan Collection Agency Dirty Trick). Here’s an actual example from September, 2011:
Jane Student (not her real name, obviously), graduated from school in 2002. In 2011 she filed a consumer proposal. A few weeks after filing the proposal she got a letter from Very Big Canadian Bank that said:
In accordance with the Bankruptcy and Insolvency Act (Canada), no active collection activity can occur on your account between now and the date you are discharged by the trustee or the proposal is annulled. However, since June 18, 1998, student loan debts are not extinguished through participation in consumer proposal. Therefore your student loan debt will survive the consumer proposal and will not be released by an order of discharge.
The letter goes on to say, basically, “call us and make payment arrangements.”
This is wrong on many different levels, and Very Big Bank Canada should no better.
First, student loans are automatically discharged, both in a consumer proposal and in a bankruptcy in Canada, if they are more than seven years old, and if no creditor objects. To state otherwise is a lie.
Second, in a consumer proposal there is no such thing as an “order of discharge”. In a consumer proposal it’s called a Certificate of Completion. Again, the bank should now the rules.
Finally, I strongly object to Big Banks bullying Canadians who are not lawyers, and who may not know the law.
So, if you file bankruptcy or a consumer proposal, and you get a collection letter for a debt that you believe was discharged in your filing, speak to your consumer proposal administrator or trustee immediately. Do your own research on the rules regarding student loans and bankruptcy in Canada.
You have rights, and even Very Big Bank Canada is required to follow the rules.