Canada Student Loan Bankruptcy Legislation

After much anticipation the government has finally introduced Bill C-55, succinctly titled: An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts.

In what is probably the biggest disappointment to former students, the much anticipated reduction in the student loan discharge period was not substantially reduced.

Since November, 2003 when the Senate Committee on Banking, Trade and Commerce released a report called Debtors and Creditors: Sharing the Burden: A Review of the Bankruptcy and Insolvency Act, former students have hoped that the government would reduce the discharge period on student loans from 10 years to 5 years, as recommended in the above noted report.

Under current law, a student loan is only automatically discharged in a bankruptcy if it has been more than 10 years since the debtor ceased to be a full time student.

If Bill C-55 passes, subparagraph 178(1)(g)(ii) of the Bankruptcy & Insolvency Act will be amended to reduce the period from ten years to seven years. In other words, if you have ceased to be a full time or part time student for seven years when you go bankrupt, your student loans will be automatically discharged.

To soften the blow, the bankrupt may apply to the court if their student loans are more than five years old, and the court may discharge the debt if the bankrupt has acted in good faith, and the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.

In our experience it is difficult to apply to a court for anything without a lawyer, so most former students will need to wait seven years before going bankrupt to have their student loans discharged.

We will continue to review the progress of this legislation and post updates as they happen.