Student Loans and Bankruptcy

Question: I have a question about Canada student loan forgiveness rules.

According to 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 for two more years. 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?

The 7 Year Rule and Student Loan Hardship Provision

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. If you have not been a student at any time (either part time or full time) in the last 7 years then your student loans will be discharged in a bankruptcy or consumer proposal.  Otherwise they will not be.

You could apply to court after 5 years (from the time you ceased to be a student) and ask  that your student loans be discharged by your bankruptcy or consumer proposal.  This is called the hardship provision. The court may or may not grant your request, depending on your financial circumstances.

If you wait seven years to file bankruptcy, your student loans would be automatically discharged in the bankruptcy.  However even if it has been less than 7 years since being a student, if you have other debts it may be better to deal with those debts now rather than waiting.  This may reduce your financial stress overall making it easier to maintain your student loan payments in the future.

These rules are complicated and each situation is unique.  We recommend that you contact a licensed bankruptcy trustee in your area to find out what solution would work best for you.

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