Student Bankruptcy: Student Loan Debt And Waiting Periods
What You Should Know If You Cannot Pay Your Student Loans
It is very common for individuals graduating from university or community college to be burdened by significant debt. Often, this debt is from student loans. In some instances, students may also carry other types of unsecured consumer debt – primarily credit card debt.
This article will address 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 Dealing with Student Bankruptcy.
To learn more about student loan debt and waiting periods, read on. You can also skip to another section (new webpage) by clicking one of the links below:
- Background Information
- Student loan debt and waiting periods
- Automatic stay of proceedings
- Recommended Strategies and Tactics
Part Two: Student Loan Debt & Waiting Periods
If you owe monies on your student loans and you wait long enough, 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, your student loan debt will survive your bankruptcy or your consumer proposal. Therefore, you must proceed very carefully when student loans form all or a part of your debt.
When we talk about student loans, two waiting periods are key to the timing of making a consumer proposal or filing for personal bankruptcy:
- Seven years from the date of the end of your education
- 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.”
Think of insolvency waiting periods as a clock with a start date and an 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’s the date that your Licensed Insolvency Trustee receives a Certificate of Appointment from the Court – typically within one or two days of your filing for personal bankruptcy or making a consumer proposal.
The $64,000 question is: when is the start date of the 7-year and 5-year waiting periods?
“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, you should seek the help of a Licensed Insolvency Trustee to ensure that you have satisfied the 7-year waiting period.
To be prudent, if your goal is to have your student loans discharged, 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 your final semester
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 bankruptcy | If 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 proposal | If 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, you are not entitled to an automatic discharge of your student loan debt, and your bankruptcy will have 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 other 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, but did so less than seven years after the end of your post-secondary education, 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 Bankruptcy and Insolvency Act (BIA), provided you satisfy a five-year waiting period.
| Satisfy the 5-year waiting period from the date of the bankrupt’s “end of their education” | |
| Filing for personal bankruptcy | If you file for personal bankruptcy more than five years after the date of your end of education, you are entitled to bring an application before the Court seeking a “court-ordered discharge” pursuant to the hardship provision under Canada’s Bankruptcy and Insolvency Act |
| Making a consumer proposal | If you make a consumer proposal more than five years after the date of your end of education, you are entitled to bring an application before the Court seeking a “court-ordered discharge” pursuant to the hardship provision under Canada’s Bankruptcy and Insolvency Act |
Subsection 178 (1.1) of Canada’s Bankruptcy and Insolvency Act states that after you complete your bankruptcy or consumer proposal, you can apply to the Court to have the waiting period concerning student loans reduced to five years, under these conditions:
(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and
(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.
So, if you satisfy the five-year waiting period, you may make such an application before the Court, and the judge has the discretion to grant a “court-ordered discharge” under the above hardship provision.
The judge will also consider three factors when deciding whether or not to make a court-ordered discharge for a person satisfying the 5-year waiting period.
These three factors are:
- How debtor used the student loan money
- Debtor’s efforts to repay the student loan
- 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 bankruptcy | Making a consumer proposal | |
| Debtor filed for personal bankruptcy or made a consumer proposal seven years after ceasing to attend school | A 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 perform all duties required under their consumer proposal. |
| Debtor ceased attending school less than 7 years before filing for personal bankruptcy or making a consumer proposal | A 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 loans | Most 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 proposal | A 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 law | A 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 |
Everything you need to know about student loans in Canada
Many Canadians struggle with student loan debts. A crushing student debt load can be detrimental to young people just starting off their careers — and their inability to service this debt can put pressure on family members who attempt to assist in paying these student loan debts.
According to the Canadian Federation of Students (CFS – Fcéé), the national student loan debt was $15 billion in 2015. And a 2020 report by the Huffington Post puts that number at $22 billion today.
As you can see, student loan debt is a big issue in this country. In fact, 49% of college students had debt in 2015 according to Statistics Canada.
Studies show that student debt can impact mental health, and it’s the main reason that young people decide to opt out of higher education. However, obtaining a student loan can still be a worthwhile undertaking, provided you choose a field of study that will increase your earning potential in the future. Keep in mind that you can still apply for a student loan even if you’re bankrupt.
That’s why it’s an issue that should be dealt with seriously, requiring careful planning and an understanding of bankruptcy laws. You want to pay off your student debt and ask for relief (or even forgiveness) so you can go on with your life.
If you have student loan debt, learn now about waiting periods to file for student loan bankruptcy.
Understanding the ins-and-outs of Canadian insolvency laws will help you make your claim correctly — and avoid any headaches with an incorrect claim.
Below, you can read the full rundown on waiting periods to file for bankruptcy. You’ll learn how many years you should wait and your consumer rights.
You’ll also learn about consumer proposals and how they can help you gain student loan forgiveness.
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: