Here we explain how you can obtain relief from your student loan debts through the proposal and bankruptcy process.
Basic stuff about student loan debts
The websites of both National Student Loans Service Centre (NSLSC, Canada Student Loans) and BC Student Loan Service Bureau (BC Student Loans) explain that:
- you have a six month grace period after you finish your studies during which you are not required to make loan payments;
- if you miss your loan payments your loan may be in default and you should want to avoid that;
- if you find it difficult to make your loan payments, you can:
- apply as many as 10 times under the Repayment Assistance Plan for a review of your household financial circumstances and a reduced loan payment for six months. To check this out, Canlearn has a useful online calculator. and
- apply for a Revision of Terms which would reduce your monthly payment by extending the duration (the amortization period) of your loan.
Even with these useful alternatives you may still find yourself burdened by not only these debts but perhaps also other debts such as credit cards, a line of credit, and more. Only part of your financial distress may be caused by your student loans.
We can help you
Student loan debts are debts to the government. These debts can only be reduced through a professional. Licensed Insolvency Trustees such as Ken Rowan & Associates Inc. are the only professional body that can assist individuals burdened with excessive debt, including student loan debts. When we consider your circumstances, we think about your debts and assets and your household income and expenses so we can devise the best strategy for you. We will discuss your budget and your option of trying to pay back your debts. We will also explain and show you the options that are only available through us, including proposals to creditors and bankruptcy, both of which are debt settlement programs under Canada’s Bankruptcy and Insolvency Act.
If you have student loan debts then as your professional we will make sure you are aware of those matters specific to student loans if you are considering a proposal to creditors or a bankruptcy proceeding.
Do you really have a student loan debt?
It is possible that you might not have a student loan debt but instead a student line of credit, a repayable grant, a bank loan directed at students, or a loan from a foreign (non-Canadian) lender. As we mention below, you will want to avoid making a proposal or becoming bankrupt within the 7 years after you ceased to be a student if you have a debt under Canada Student loans Act, Canada Student Financial Assistance Act, or Canada’s Apprentice Loans Act.
Proposals to creditors and bankruptcy
If your debts are too large to handle, consider making a proposal to creditors or a bankruptcy filing, both of which are intended to give you a fresh financial start. Both proposals and bankruptcies are governed by Canada’s Bankruptcy and Insolvency Act and section 178 says you will be released from your student loan debt (and apprentice loan debt) when you are discharged from your bankruptcy or when you complete your proposal only if the date your bankruptcy or proposal filing commenced is more than 7 years after you ceased to be a student.
This is why people sometimes say “you can’t go bankrupt on your student loans” but it just depends on timing.
Has it been more than 7 years since you ceased to be a part-time or full-time student?
The question is not “what did you get your student loan for and when did you finish that program?” Instead think about all the studies you took, part-time or full-time.
If you did not return to school after the studies for which you obtained your student loan then student loans will probably consider you to have stopped being a student on your end-of-study date. They should take the position that, at the very earliest, your end-of-study date is the last day of the month which is 6 months after the later of (a) the date you were originally expected to graduate; and (b) the date you actually graduated. Your end-of-study date is important and we recommend you contact student loans and ask them for it.
Regarding a debt you may have under the Apprentice Loans Act, the equivalent reference date would be the date you ceased to be an eligible apprentice under Canada’s Apprentice Loans Act.
BC Supreme Court decision regarding student loan debts
Someone who resumed studies in any field even long after a student loan was obtained could still fall into the category of not having ceased to be a student. This question was considered by the courts of different provinces which reached different decisions. In the 2015 decision Re Mallory 2015 BCSC 5, the Supreme Court of British Columbia decided that “… those … who … concluded that the phrase “ceased to be a full-time or part-time student” in s. 178(1) refers to the study period associated with the student loans in question and not the end of the last period of studies, have misinterpreted the words and meaning of the section.”
So, in BC the question is not whether more than 7 years have passed since you finished your schooling in respect of which you obtained your student loan. You must also ask whether you have subsequently been a student which would re-start the 7 year calculation. So much for life-long learning.
IF IT HAS NOT BEEN MORE than 7 years since you ceased being a student
In this circumstance, take note of the following:
- if you need financial help, is it possible to postpone any bankruptcy or proposal filing until those 7 years are finished?
- making a filing at this time and completing it means you would be free from presumably all your other unsecured debts and have had time to restructure your finances so you can get at your student loan debts which would have continued to accrue interest;
- depending on the size of your student loan, a proposal to creditors could be very expensive and bankruptcy could be your preferred financial option;
- if you want, you can continue to make payments on your student loans during your proposal or bankruptcy after we provide our written consent;
- if you do not make student loan payments during your bankruptcy or proposal then your loan will eventually be in default status. When your proposal or bankruptcy is completed you will need to apply for reinstatement of your loan which requires payment of all outstanding interest and more. One of the reasons you will want your loan to be up-to-date is because only then are you eligible for interest relief and Repayment Assistance; and
- if you are still having difficulty, and you have tried to make student loan debt payments but cannot, the Court can order that you are relieved from your student loan debts under section 178 (1.1) of the Bankruptcy and Insolvency Act.
IF IT HAS BEEN MORE than 7 years since you ceased being a student
That is, at least 7 years have passed after you ceased to be a student and before you commenced your bankruptcy or proposal filing. In this circumstance, completing your proposal or obtaining your discharge from bankruptcy will release you from your student loan debts.
When you make a proposal or when you become bankrupt it reasonable to assume that Student Loans will review your circumstances in more detail. If they believe your proposal is inadequate or that you received a great benefit (E.G. education, enhanced income) as a result of this loan, they might decide to oppose your proposal (I.E. to vote against it) or your discharge from bankruptcy.
Do You Need Another Student Loan?
You need to discuss this question with Student Loans which may set terms for you. It is possible you are eligible for a new student loan only if you are continuing with an uninterrupted program of studies already funded by Student Loans or only if you firstly pay off all your student loan debts.
We are here to help you. Contact Ken for help without obligation at 604-531-4186 or by email.