Student loans and bankruptcy
Question: Dear Sir, I have a question about Canada student loan forgiveness rules.
According to the proposed changes to the Bankruptcy & Insolvency Act, a bankrupt person who has been out of school for five or more years may apply to a court to be discharged from their student loans.
I am a Canadian citizen and an Ontario resident, and have attended university in 3 different periods, with intervals of one or two years in between. I completed the first 2 programs over 5 years ago. Then was out of school for a year, and then attended another university from 2003 to 2005.
When the proposed changes come into effect, will I be eligible for loan forgiveness for the portion of my student loans that I received over five years ago, or would my application be rejected, because I have been out of school for less than 5 years?
Thanks in advance for your attention.
Answer: First, the changes you describe came into effect on July 7, 2008. Full details can be found on the student loan bankruptcy Canada web site.
The period for the discharging of student loans in a bankruptcy starts when you cease to be a student. In your case, you ceased to be a student in 2005, so if you were to go bankrupt now, in 2008, your student loans would not be automatically discharged. After bankruptcy, you could apply to court in 2010 and ask for forgiveness of the student loans; the court may or may not grant your request, depending on your financial circumstances. If you waited seven years (ie. until 2012) and filed bankruptcy, your student loans would be automatically discharged in the bankruptcy.
These rules are complicated, so for more details, contact a licensed bankruptcy trustee.