Student Loans Question and Answer
I just came across a question and answer that baffled me! While reading through the site, I came across this line, “Some unsecured debts are also not discharged in a bankruptcy, such as student loans less than 10 years after you stopped going to school.” Then the question I found was from a student, “I am considering personal bankruptcy and have student loans less than 10 years old. Would I be expected to make student loan payments during the bankruptcy? If so, how would this affect the surplus income calculation?”…in my mind, the answer is yes, you have to continue making those payments, student loans are not discharged. And it only makes sense that those payments affect what your surplus income total is, since it is NOT voluntary, it is a mandatory payment. But the response was this, “If you file bankruptcy or a consumer proposal the expectation is that you will NOT continue to make your student loan payments. Unfortunately, if you decide to make the payments, your student loan payments do not qualify as a deduction from your income for surplus income.” It seems that the response was the exact opposite. Please help me to understand this.
Shannon
This is definitely a confusing issue, so I will try to clarify a bit.
If you have student loans that aren’t extinguished by a bankruptcy you are not required to make payments on the loan during the bankruptcy. However, during the bankruptcy the interest will continue to accrue. As a result, we always recommend that people try to arrange to continue to make payments on these loans during the bankruptcy at a level that will at least cover the interest being charged.
The difficulty you will find is that as you are not required to make these payments they do not get deducted from the Surplus Guideline. For more information you may want to contact a local trustee to investigate any differences across jurisdictions.