Student Bankruptcy: Student Loan Debt And Waiting Periods

What You Should Know If You Cannot Pay Your Student Loans

It is very common for people coming out of university or community college to be burdened by significant debt levels. A significant amount of this debt might be for student loans and in some instances other types of unsecured consumer debt—primarily credit card debt.

The purpose of this article is to address some of the key issues facing people who owe a significant amount of money because of student loans.


This is the Second Article In a Series of Four About Student Bankruptcy:

To find out more about Student Loan Debt And Waiting Periods read on, you can also skip to another section by clicking one of the links below.

  1. Background Information
  2. Student loan debt and waiting periods
  3. Automatic stay of proceedings
  4. Recommended Strategies and Tactics

Part Two: Student Loan Debt & Waiting Periods

If you owe monies on your student loans and you wait long enough then it is possible for you to eliminate this debt by taking advantage of either a consumer proposal or personal bankruptcy. If, however, you do not satisfy certain waiting periods under federal law, then your student loan debt will survive your bankruptcy or your consumer proposal.

When we are talking about student loans, there are two key waiting periods which are relevant when it comes to making a consumer and filing for personal bankruptcy:

  1. Seven years from the date of the end of your education
  2. Five years from the date of the end of your education

“Canada’s insolvency laws punish those with outstanding student loans who file for personal bankruptcy or make a consumer proposal within seven years of ceasing to be a student.”

Helpful to think of insolvency waiting periods as a clock with a start date and end date

It is helpful to think of these waiting periods as a clock with a start date and an end date. The end date is straightforward. It is the date that you your Licensed Insolvency Trustee receives a Certificate of Appointment from the Bankruptcy Court—typically within one or two days of your filing for personal bankruptcy or making a consumer. The $64,000 question is when is the start date for the running of the 7-year and 5-year waiting period?

“There are a significant number of Canadians who waited several years before applying for a bankruptcy or making a consumer proposal who subsequently found out that they failed to have their student loan forgiven because they miscalculated the start date on the running of the 7-year waiting period under federal insolvency law—by a period of a few days, weeks or months.”

Calculating when the 7-year waiting period begins to run

If you are contemplating filing for personal bankruptcy or making a consumer proposal in the hopes of discharging your student loan debt then you should seek the help of a professional to ensure that you have satisfied the 7-year waiting period.

To be prudent, if your goal is to have your student loans discharged then you should calculate the start date on “the end of your education” as the latter of

  • The date you actually ceased attending school, or
  • The last day of your exams for a particular semester

and you might want to add 30 to 90 days out of an abundance of caution.


Benefit Of Satisfying 7-Year Waiting Period Under
Canada’s Insolvency Laws

Satisfy the 7-year waiting period form the date of the bankrupt’s “end of their education”
Filing for personal bankruptcyIf you file for personal bankruptcy more than seven years after the date of the ?end of your education? then you are entitled to an automatic discharge of your outstanding student loan
Making a consumer proposalIf you make a consumer proposal more than seven years after the date of the ?end of your education? then you are entitled to a discharge of your outstanding student loan on the date you satisfy your obligations under your consumer proposal

If you file for personal bankruptcy in circumstances where you do not satisfy the seven-year waiting period then you are not entitled to an automatic discharge with respect to your student loan debt, and your bankruptcy has no impact on your legal obligations arising from that indebtedness. If you fail to satisfy the 7-year waiting period you will, however, be entitled to have most, if not all, of your unsecured consumer debt discharged or forgiven as a result of your bankruptcy.


Potential “court-ordered discharge” under “hardship provision” where 5-year waiting period satisfied

If you filed for personal bankruptcy or made a consumer proposal and you did so less than seven years after the end of your post-secondary education then you are not entitled to an automatic discharge or forgiveness of your student loan debts. There is, however, a possibility that you might be able to obtain a “court-ordered discharge” under a “hardship provision” in Canada’s insolvency laws provided you satisfy the five-year waiting period.

Satisfy the 5-year waiting period from the date of the bankrupt’s “end of their education”
Filing for personal bankruptcyIf you file for personal bankruptcy more than five years after the date of the “end of your education” then you are entitled to bring an application before a court seeking a “court-ordered discharge” pursuant to a “hardship provision” under federal bankruptcy law
Making a consumer proposalIf you make a consumer proposal more than five years after the date of the ?end of your education? then you are entitled to bring an application before a court seeking a “court-ordered discharge” pursuant to a “hardship provision” under federal bankruptcy law

If you satisfy the five-year waiting period then, you have the option of making an application before a judge in Bankruptcy Court, and the judge has the discretion to grant a “court-ordered discharge” under a “hardship provision”. When exercising this discretion under the “hardship provision” a judge will consider three factors when deciding whether or not to make a “court-ordered discharge” for a person satisfying the 5-year waiting period—as opposed to the automatic discharge a person is entitled to who satisfies the 7-year waiting period.

These three factors are as follows:

  1. How debtor used the student loan money
  2. Debtor’s efforts to repay the student loan
  3. Debtor’s efforts to complete the educational program

A Summary of Consumer’s Rights Concerning Student Loans
Under Canada’s Insolvency Laws

Filing for personal bankruptcyMaking a consumer proposal
Debtor filed for personal bankruptcy or made a consumer proposal seven years after ceasing to attend schoolA person filing for personal bankruptcy is entitled to an automatic discharge or forgiveness of their student loan debt provided they ceased attending school 7 years from the date of the end of their education.A person making a consumer proposal more than seven years after the end of their education is entitled to an automatic discharge or forgiveness of their student loan debt on the date they pay all monies owing under their consumer proposal.
Debtor ceased attending school less than 7 years before filing for personal bankruptcy or making a consumer proposalA person filing for personal bankruptcy less than seven years after the end of their education is not entitled to an automatic discharge with respect unpaid student loansMost entities that provide student loans take the position that, where a person makes a consumer proposal less than seven years from the date of the end of their education then their student loan indebtedness is unaffected by any potential discharge?which normally takes place on the date of the last payment under the consumer proposal.
Debtor ceased attending school at least 5 years?but not more than 7 years?before filing for personal bankruptcy or making a consumer proposalA person who has ceased to be a student for 5 years before filing for personal bankruptcy is entitled to apply to a judge for a “court-ordered discharge” of their unpaid student loans under a “hardship provision” under Canada’s insolvency lawA person who has ceased to be a student for 5 years before filing for a consumer proposal is entitled to apply to a judge for a “court-ordered discharge” of their unpaid student loans? under a “hardship provision” under Canada’s insolvency law

Continue to the Next Article “Automatic stay of proceedings”

If you want to learn more about how to deal with your student loan debt then you should speak with a Licensed Insolvency Trustee.

You can also skip to any one of the article sections below to continue reading or re-cap on any information covered in this series of articles;

  1. Background Information
  2. Student loan debt and waiting periods
  3. Automatic stay of proceedings
  4. Recommended Strategies and Tactics