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.