Many Canadian students need student loans to finance their education. In fact, over 1.8 million Canadians have student loans, with 55% of full-time students owing $10,000 or more upon leaving school.
So the question is, if you fall on hard times and are unable to pay your student loan debt, is there help available?
The good news is student loan debts can be forgiven through bankruptcy alongside other unsecured debts, but only after seven years.
In this guide, we look at what happens to student loans when you file for bankruptcy and the options available if you are not eligible.
What happens to student loans if you file for bankruptcy?
There is a seven-year rule for student loans in Canada under the Bankruptcy and Insolvency Act.
Bankruptcy clears student loans if it has been at least seven years since you were a full or part-time student. The clock starts from the date you completed your studies, which can be obtained by contacting National Student Loan Service Centre (NSLSC).
Student debt cannot be eliminated through bankruptcy if it’s less than seven years.
If you cannot include your student loan in bankruptcy
If you are not eligible to have your student loan debt discharged in bankruptcy, you can ask for a temporary reduction in student loan payments or more time to repay your student debt.
Alternatively, you could stop making payments during your bankruptcy and resume once you are discharged. Interest will continue to accrue on the debt during this time.
Bankruptcy hardship provision: early student loan discharge
If you are currently in bankruptcy or were previously bankrupt, the hardship provision lets you ask the court to have your student loan discharged in five years instead of seven.
The court will look at several factors to determine whether to discharge the student loan, such as:
- How did you use your student loan funds?
- Did you complete the educational program?
- Did you use the Repayment Assistance Plan?
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.
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?
You may have accumulated debts from being a student, like loans, credit cards or other unsecured lines of credit. The good news is you can include these debts in your bankruptcy, regardless of their age.
|Eliminated in bankruptcy||Not eliminated in bankruptcy|
Clearing these debts might free up enough money to repay your student loan.
You can clear student loan debts in bankruptcy if it’s been at least seven years since you were a student.
If your student loan debt isn’t old enough, you could file bankruptcy or a consumer proposal for your other debts to free up money for your student loan repayments.
Connect with a Licensed Insolvency Trustee to find out more.
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