Student Loans are a unique debt and they have received a lot of press and attention over the years. From a public policy perspective, the Government of Canada was concerned that people would get an education and then go bankrupt or try to file a consumer proposal to eliminate their obligation to repay them. There have been several amendments to the Student Loan Insolvency Laws in a very short period of years, to deal with that exact concern.
It is expected that one’s education will benefit a person, and result in increased personal and/or family earnings, such that the Student Loan debt can be repaid. This presumes that there is a direct correlation between education and income, which for many, is not always the case.
STUDENT LOAN LAWS
Section 178 of the Bankruptcy and Insolvency Act was amended to allow creditors, notwithstanding that an individual may have gone bankrupt or filed a consumer proposal, to enforce the repayment of Student Loans if less than seven (7) years had passed since an individual graduated from or last attended school. It has been determined that the date of relevance for the seven (7) year cutoff for Student Loans is the last day of the semester which was attended or graduation date, not the actual last day attended in that semester, if that occurred earlier.
Individuals who have quit or left school part way through a semester or prior to the end of a course are cautioned, and should be aware that their date of last attendance is not the date to consider when making the seven year determination.
Individuals who have been out of school for just under seven years may want to consider the timing of any action they intend to take, and take steps to delay filing their consumer proposal until a full seven years has passed. There may be cases, however, where an individual’s debts and the pressure from creditors are so significant that action is warranted even if the Student Loan will survive. This will depend on how many other debts an individual has and how large they are.
STUDENT LOAN LAWS OFFER A “HARDSHIP PROVISION”
In cases of undue hardship, where the Court determines that, where an individual has acted in good faith, a person’s income is severely limited, and the situation is not likely to change, an individual may apply to Court to obtain forgiveness of their Student Loan after five years.
A Consumer Proposal Specialist can help you assess your situation and the potential merits of proceeding with a consumer proposal when you have a Student Loan.