By Arash Jazayeri
As tuition has been increasing over the years, student loan debt has become more and more of a burden. If you are struggling to pay off your student loans years after finishing your studies, is bankruptcy the right option for you?
The law on the matter is that student loans can eventually be expunged. The main issue is the number of years that have passed since you last finished the studies that were funded by those loans.
If you have finished your studies seven or more years ago
By virtue of s. 178(1)(g) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, your student loan debt becomes eligible for discharge if seven years have passed since you finished studies that were funded by those loans. This means that either filing for bankruptcy or submitting a consumer proposal will normally result in the bankruptcy court discharging your student loan debt. A consumer proposal is a process in which you may settle your debts with creditors without declaring bankruptcy.
This rule applies regardless of whether you were a full-time or part-time student or whether you have graduated or not.
If you went back to school in the interim but received no more student loans
There has been case law from Alberta (Financial Collection Agencies Ltd. v. Onyschuk, [2002] A.J. No. 262), Saskatchewan (Re Ledoux, [2005] S.J. No. 82, Re Hildebrand, [2010] S.J. No. 523), and Nova Scotia (Re McNutt, [2008] N.S.J. No. 228) suggesting that if you go back to school in the interim and do not receive fresh student loans, the clock does not reset. While these cases are not binding in Ontario per se, they have strong persuasive value in this province. This means that if you have not received new loans for seven years, there is a good chance that you can be discharged of your student loan obligations.
If you have finished your studies less than seven years ago
If you have finished your studies less than seven years ago, filing for bankruptcy or submitting a consumer proposal, under normal conditions, will not discharge you from your student loan obligations. If five years have passed, however, you would be eligible for a discharge on grounds of financial hardship by virtue of s. 178(1.1)of the Bankruptcy and Insolvency Act. The hardship criteria require that you be able to prove that: 1) you have acted in good faith by seeking employment and making regular repayments whenever possible; and 2) you expect to continue to experience financial difficulties.
Next Step
If you feel that you may qualify to have the burden of your student debt removed, then you might want to consider booking an appointment to come visit us. Our bankruptcy lawyers can make recommendations based on your individual circumstances, such as entering into bankruptcy, a consumer proposal, or applying to court under the hardship rule.
Everything you disclose to us is completely confidential and is covered by solicitorclient privilege, so you can speak freely and openly without fear of legal liability. Our lawyers are wholly independent, and will provide you the best advice in the wider context of your particular situation.