Bankruptcy and Student Loans
In Canada, increasing tuition, text, and living costs have left many college and university students with no option but to take out large student loans, despite their savings and part time jobs. For the past three decades, the cost of education has risen much faster than the rate of inflation. Additionally, the traditional low interest rate on student loans was abolished, creating higher monthly payments to service the amount added by interest.
If the primary debt forcing you to consider bankruptcy is your student loan, you should be aware that it is treated differently than loans from other creditors. The main thing to be aware of is that student loans are not eligible to be discharged through bankruptcy UNLESS you have been out of school (either full time or part time) for at least seven years.
The court will decide whether or not to discharge your student loan if, based on the documentation filed by your trustee, (a) they are satisfied that you have acted in good faith in connection with your loan liabilities and (b) you will continue to experience financial difficulty to the point that you will be unable to repay your loan. While your past financial records of income and expenses will show fairly clearly whether you acted in “good faith,” there is more difficulty in deciding what your future inability to pay will be. It also varies by province and city. Your bankruptcy trustee can fully explain the section of the Bankruptcy and Insolvency Act that applies to the specific details of your student loan.
In July 2008 the government reduced the exemption time on student loans from ten years to seven years.
Although it is uncommon, you can still apply to the Court as a hardship case after your bankruptcy is discharged to ask that your student loan debt be discharged if you declared bankruptcy before either of these time frames had elapsed. Ask your bankruptcy trustee how to go about this process.