Many Canadian students turn to student loans to finance their education.
But if you fall on hard times and need help to resolve your debts, is there a way to relieve your student debt burden?
Although bankruptcy can clear away most debts, can student loans be included in bankruptcy?
To find out, keep reading.
Can student loans be included in bankruptcy?
There is only one way to eliminate student loan debt through bankruptcy: you must be out of school for seven years or more before filing.
In other words, if it has been at least seven years since you were a full or part-time student, your student loan debts can be included in your bankruptcy and discharged upon completion.
If you’ve been out of school for less than seven years, you will not eliminate your student loan debt through bankruptcy.
Upon completing your bankruptcy, your student loan debt would still be your responsibility to pay, and interest will continue to accrue on the debt.
The seven-year rule
If you’ve been out of school for seven years or more
You can eliminate your student loan debt if you file for bankruptcy.
If you’ve not been out of school for seven years
Your student loan debt cannot be eliminated if you file for bankruptcy.
But there are some provisions in the Bankruptcy and Insolvency Act, which could allow you to stop making payments during your bankruptcy and start making them again once you are discharged.
If you cannot include your student loan in bankruptcy
If you are not eligible to include your student loan debt in your bankruptcy, consider the following:
- Ask for a temporary reduction in student loan payments.
- Request more time to repay your student debt.
- You may be able to stop making payments during your bankruptcy and start making them again once you are discharged.
Talk to a Licensed Insolvency Trustee about these options.
Applying for early student loan discharge after bankruptcy
Once you’ve completed your bankruptcy and it’s been at least five years since you were a student, you can apply to the court to have your student loan discharged early. This process is known as the hardship provision.
The court will look at several factors to determine whether to discharge the student loan.
If the court is satisfied that you acted in good faith to repay the debt, tried to meet your repayment obligations, and you can demonstrate that repaying the student loan is causing financial hardship, they will discharge you.
Qualifying for early discharge
When the court reviews your discharge, they may ask some questions such as:
- How did you use your student loan funds?
- Did you complete the educational program?
- Did you take advantage of the federal government’s Repayment Assistance Plan?
How do I find out my end of study date?
The seven-year period required to eliminate your student loan starts at the end of the study date. Remember that the end-of-study date is not necessarily the last day you attended classes.
You can find out by contacting the National Student Loan Service Centre (NSLSC).
What about debts as a result of being a student?
Suppose you have accumulated debts resulting from being a student, such as a private student loan, payday loans, credit cards or unsecured lines of credit. In that case, you can include these debts in your bankruptcy, regardless of their age.
By doing so, you can clear your other debt, which may give you the ability to repay your student loan. If you are unsure if this applies to you, consult a Licensed Insolvency Trustee.
What other types of debt can I include?
Bankruptcy will eliminate most unsecured debts:
|Can be included||Can’t be included|
If it has been at least seven years since you were a student, your student loan debts can be included in your bankruptcy and eliminated upon completion.
If you’ve been out of school for less than seven years, you won’t eliminate your student loan debt through bankruptcy.
Even if bankruptcy doesn’t eliminate your student loan debt, it can still eliminate most of your unsecured debt.
Legal action, wage garnishments and collection calls will stop, and you could complete the process in as little as nine months.
However, If a student loan makes up a majority of your debt, it’s likely to be unsuitable.
For free, impartial advice to determine if your student loan can be included in a bankruptcy, connect with a Licensed Insolvency Trustee.
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