One of the most complicated areas of bankruptcy law is the rules surrounding bankruptcy and student loans.
Almost everyone by now knows that there is a 7-year bankruptcy rule for student debt. This rule has been around since 2008, but is commonly misunderstood.
The Bankruptcy and Insolvency Act, specifically section 178. (1) (g), states that you cannot be released from loans under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or similar provincial legislation:
(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 plain English, what that actually says is that in order for you to be released from your student loan you must have been out of school for at least 7 years. If you have been out of school for seven (7) or more years and then file a bankruptcy or a consumer proposal, then the loan is a normal unsecured creditor and can be cleared by the bankruptcy or proposal.
Some other things you should know:
- Out of school means when you last left school. That means the end of your last full or part time course.
- It has nothing to do with how old your student loans are. If you go back to school, even part time, and pay for this on your own, you could start the 7 year waiting period all over again.
- This rule also to a consumer proposal, as well as bankruptcy.
- The waiting period can be shorted to five (5) years if you can prove financial hardship under the Act, but this requires you to go to court and convince a bankruptcy judge that you are suffering financial hardship.
Regardless of the specifics, declaring bankruptcy with student loans raising questions and concerns about what is the right course of action.
If you are struggling financially and have student loans, talk to a Licensed Bankruptcy Trustee about your “end of study date”, and what you can expect if you file a bankruptcy or a consumer proposal.
I have a question regarding the 7-years rule. I finished post secondary education in 2015 and filled for bankruptcy (credit card debt) in the same year. The student loan was of course not discharged. Because I am underemployed and in precarious financial situation, I am thinking to apply to court to discharge the student loan under the hardship provision at the 5-years mark.
However, I am taking now free English classes for immigrants funded by Citizenship and Immigration Canada (https://issbc.org/our-resource/register-for-linc) and I was wondering if this classes are considered ‘return to school’ and they are resetting the clock under the bankruptcy law. Thank you!
Hi Edward. The case law is inconsistent on this point. In some cases the court will decide that since you are not getting a student loan for your English classes the clock is not reset. Other cases have determined that since you are a student, the clock does reset. You have three options:
1. You could make the application to court yourself and see what the court says
2. You could consult an insolvency lawyer and have them make the application for you (although they will charge a fee).
3. You could wait until 7 years is up and file another bankruptcy, or a consumer proposal.
Hope that helps.
Thank you so much, J. Douglas Hoyes, your answers were really helpful. Now arises for me another question. You may move it on another topic if it doesn’t fit here and maybe it is helpful for other readers.
I filled for bankruptcy in 2015, just right after completing education, and the student loan was not discharged. Now in 2019, my credit score looks good (725 on Equifax), I think because I am using a secured credit card on a daily basis. Will my credit score be lowered again by applying to court to discharge the student loan under the hardship provision ? I am worried to not be able to rent a place to stay in the future. Thank you !
Hi Edward. As a general rule, no, student loans are not reported to the credit bureau, and since the bankruptcy has already happened it is unlikely that a court application will be reported to the credit bureau. Good luck with your hardship application!
If someone left university in 2005 without completing degree, can his student loan(federal, provincial, other) can be forgiven? Secondly can he get mortgage to buy a house during the process of loan forgiveness?
If by forgiven you mean may the loan be discharged (written off) if you file for bankruptcy or a consumer proposal the answer is yes. You simply need to have been out of school for 7 years for student loans to be discharged by bankruptcy or a consumer proposal. You may certainly apply for a mortgage during either a bankruptcy or proposal, but the likelihood of being approved is very low. Further, if approved the interest rate on the mortgage will be very high.
If someone has been out of school for almost 9 years and just started an online course witch my Mother is paying for it..can i still applie for bankrupsy for my osap
Probably. The rules say 7 years form your end of study date (when you were last enrolled in school). If the new on-line course has nothing to do with what you studied 9 years ago you should be fine. Check with the National Student Loan Centre in Mississauga to find out what they have listed as your end of study date before you file for bankruptcy.
Say my last day as a student was Dec,20th, 2013 and I applied for Bankruptcy Feb, 15,2020 is that considered 7 years.
No, it is not. 7 years would be Dec 21, 2020, but if I were you I’d check at the national Student Loan Centre when the last day you were registered as a student and it is often a couple of months later than the last date you attended the school.
Hello, my student loan of $8147 grew to 35,899 in 2004. My wages were garnishee’d to that extent over next 2 years. Monies sent to the Sherrif’s office (University St). They have been sending notices that now say I still owe 40,000 plus due to interest. Last payment they received was in 2007. They’re now threatening further collection action. They being CRA.
Id like to know if I have options, if at all possible.
Hi Blair. Yes, you have options. You should start by confirming directly with student loans the balance owing. Then, if you are able, you can work out repayment arrangements with them. If the balance owing is more than you can repay, you can talk to a licensed insolvency trustee about filing a consumer proposal or bankruptcy to deal with the student loan. Since it appears that you have been out of school for more than 7 years, your student loan would be dischargeable in a consumer proposal or bankruptcy.
I currently hold 62 000 worth of student debt. I meet the 7 year requirement for the portion accrued during my undergrad degree, but not for that pertaining to my graduate degree. Is it possible to discharge the portion of student debt that does meet the 7 year requirement?
IF your graduate studies were dependent on your under graduate degree then the 7 year time period starts when you completed your graduate work. The best thing to do is to check the National Student Loan Centre for your “end of study” date – that last day they consider you as being registered as a student. The 7 year clock starts ticking from that date forward…
Hi, I filed for bankruptcy in 2007 and got discharged in May 2008. Currently, I have about $21000 in unsecured loans and about $19000 in OSAP loans. I work part-time at Walmart and have severely fallen behind in payments and some have gone to collections.
I’m planning on going back to school in September 2023 but I need OSAP. The problem is I attended college between 2012 and 2016. I heard about the 7-year rule and when I called to verify my end-of-study date, they said it was January 2018. Apparently, I applied at that time and received OSAP but withdrew from classes in the first week. Therefore no classes were attended but OSAP was given and not repaid (overpayment was issued). Does that mean my end-of-study date is January 2018? Do you need to attend at least one class or just being award OSAP but not attending class is enough to restart the 7 year rule?
Yes, your end of study is the last day you were registered as a student at whichever institution you applied for OSAP with. The fact that you never attended is not likely relevant. You applied and took the money – the moeny needs to be repaid and your end of study is the date at which all the repayment rules kicked in.