How Will Bill C-55 Impact on Consumer Proposals?
Even though former students have been unable to automatically discharge student loans less than 10 years old (seven years under the newly proposed Bill C-55) if they go bankrupt, students could in the past file a consumer proposal. Canadian bankruptcy reform in Bill C-55 may change that.
The process was simple. If a former student had $25,000 in debts (say $15,000 in credit card debts and a $10,000 Canada student loan that was six years old), they could file a consumer proposal. If more than half of the dollar value of the creditors accepted the proposal, the proposal was accepted.
Thus by filing a proposal calling for payments of say $200 per month for five years, if the credit card companies accepted the proposal, the student loans also had to abide by the terms of the proposal, whether they voted for it or not (since more than half of the debts voted in favour of the proposal). Since at the conclusion of the term of the five year proposal the student loans were now eleven years old, the debtor was, in most cases, effectively able to discharge their student loans.
(Please note that this is an example for illustrative purposes only; the law is more complex than stated here, so you should contact a licensed trustee to review your specific situation before deciding if this approach will work for you).
However, Bill C-55, 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, contains an interesting amendment.
The proposed new section 68.28 (2.1) of the Bankruptcy & Insolvency Act states that “A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability has assented to the consumer proposal.”
The section that deals with the discharge of student loans is contained in section 178(1) of the Act. Specifically, section 178 (1)(g) of the Act states that the following debts are not automatically discharged in a bankruptcy:
(g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
(i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or
(ii) within ten years after the date on which the bankrupt ceased to be a full- or part-time student; or
(h) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (g).
Enough of the legal double-speak. What does this mean?
Simple. Under the amendments proposed in Bill C-55, a former student’s student loans, if less than seven years old, will only be discharged in a proposal if the student lender specifically votes in favour of the proposal.
Using our example above, if $15,000 in credit card debts voted in favour of the proposal, but $10,000 in less than seven year old student loans voted against, the proposal would be accepted, but the student loans would not be discharged. At the end of the proposal, the debtor may still be liable for the student loan debts.
Again, we must comment that the legislation has not yet been passed into law, and we are merely speculating as to the meaning of the proposed legislation. Our comments may be incorrect, so you should contact a licensed trustee to get advice on your specific fact situation.
Stay tuned to this space for further updates, or post your comments by clicking on the Comments button below. The current status of Bill C-55 can be found on the Parliament of Canada’s web site.
I may face a second Bankruptcy and I am only 34! Because of a young marriage gone “a rye”, I was left to carry the financial burden of a husband who took off and never returned (yah-dah, yah-dah, yah-dah) I got on with my life and raised my little ones alone and educated myself to make a life for us…I accumulated OSAP debt to make this a reality. After completing 2 years of college and one of university, I owed $11,000 in Ontario Loans in $17,000 in Federal Loans….I enter into and qualified for interest relief ( my chosen career, Social Work just doesn’t pay that well)……..4 months after completing school, my financial past comes back to haunt me and I owe for a house that my ex ran out on me with from 4 years previous….I am forced to claim bankruptcy (July 2000).
Now I have exhausted interest relief, and qualify for interest only payments because I am still not making that much money and yet I work full time….go figure and guess what? I’ll end up paying thousands in interest only payments for years to come and not even touch the principal……I asked the government to apply a debt reduction to my loans and they said NO!!! Reason, because I claimed bankruptcy before May 2004.
I am disgusted at this country for the predicaments in puts students into. Everyday I work with those most in need in this society…and I fear I may be come one of them someday as I am facing the very reality that I may again have to claim bankruptcy because the student loan debt is killing me!!!
I am not trying to sherk my responsibility of paying back the student loans….but how about a little help.
This bill needs to pass and needs to be set up to help everyone in need and not dicrminate through time lines!!
Shan in Niagara
You are correct that in some cases the rules don’t make sense.
A suggestion: Even though your student loans were not 10 years old when you went bankrupt, it may be possible to have a lawyer apply to bankruptcy court to have your student loans discharged, on the basis that you are suffering undue hardship attempting to repay them.
There is no guarantee that the courts will discharge your loans, but they have done so in some cases in the past.
If you want to avoid the legal fees, you could start by contacting your original trustee to see if they have expertise in this area, or contact another licensed trustee to see if they can help.
When they say 10 years from the date of last attending school, does this mean:
- if you graduate in May 10, 1993 that you cannot be eligible for discharge until exactly May 10, 2003?
Thanks
If this bill is passed, will this apply to student loans acquired prior to the legislation? For example, if I stopped being a student in 1999, would I be able to file for bankruptcy after 7 years or would I still have to wait the original 10 years?
We do not know at this time exactly how the new laws will be applied if they are ever passed. It is unknown whether or not they will be retroactive.
However, it is assumed that if you go bankrupt in, say, 2006, after the new law is in effect (a big assumption at this time), any student loans that are, at that time, more than 7 years old would be automatically discharged.
The seven or ten year limit applies from when you ceased to be a student.
Is it from the date that you stopped attending classes that you have “ceased being a student”? Or is it from the day you graduated from the institution? I finished my last course in the summer of 1999 but actually graduated from university in the spring of 2000 so when did I cease being a student for student loan/bankruptcy purposes?
No-one knows for sure what “ceased being a student” means. In your example, I would assume that once you had finished all of your classes and exams, you are no longer a student, even though perhaps the graduation ceremony didn’t happen for a few more months.
However, to my knowledge this has not yet been tested in court, and therefore we cannot give a conclusive answer.
I was told by a friend who has gone through it ‘not to consolidate’ though I am not sure why – the person knew I was not in a position to repay. Any suggestions?
Whether to consolidate (ie. borrow from another lender to repay your student loan)depends on your ability to repay. If you have a good interest rate and good repayment terms on your student loan, it may not make sense to consolidate if you end up paying a higher interest rate and have less favourable repayment terms.
I just want to say thanks for taking time to answer the questions put to you here. It shows that you have a social conscience and acutally care about how all of this impacts real people instead of just caring about the almighty dollar. I, for one, appreciate it.
I went bankrupt in 2002 to 2003 and was discharged two years after 02 – When can my student loans be applied to the bankruptcy -I was a student 1993 to 1996 then again for 1 year in 98
And can any inheritances that might occur in the next few years be grabbed by the gov’t over the student loans
It amazes me how this liberal gov’t drags in boat loads of immigrants puts them straight into citizenship so they can vote them liberals back in and then gives them education for free so they can run off to the US afterwards for higher paying jobs – all the while wanting my little money that I make so they can give it away to some Arab !
I have student loans from university attendance from 1993 to 1996 and more from attendance from 2001 to 2003. Can I declare bankruptcy on the 1993 to 1996 portion of my student loans?
Also, to qualify for interest relief, I had to report my spouse’s income and he had to sign the form with his SIN. Does this signature on the Interest Relief Application make him liable for my student loans if I default on them?
Thanks so much.
The way the rules are written, the ten years start from when you ceased to be a student, so if you were a student in 2003, it has not been ten years, so your student loans would not be discharged if you went bankrupt.
No, just because your spouse verified their income, that does not make your spouse liable for your student loans.
I have student loans from university attendance from 1994 to 1998 and more from attendance from 1998 to 2000. I filed a consumer proposal, and I was advised that they couldn’t include my student loans. Was I lied to? misinformed? If so, can anything be done now?
I am wondering…after 10 years, do student loans automatically discharge, or do I have to claim bankruptcy anyway? My son became seriously ill while I was in colege, and I was forced to quit (we were in and out of hospitals). I owe around $20000, and have been struggling for 9 years to make even small payments.
Well, I’m 35..soon to be 36 and my life has been ruined by student loans. I went to university 1994-1999 and loved every minute of it, but when I graduated my monthly loan payments were going to be over $900. Needless to say I couldn’t afford that and still can’t. I can’t get approved for any sort of credit. I can’t even get approved by the oil company to get a tank full of oil in the house I rent. I’m pretty much tired of the whole thing.
I am roughly 80 grand in debt to student loans and, with interest about 40 grand in consumer debt. I finaly have a half decent job, but now I am being hounded to death for student loan payments and the rest of it. I have never declared bankruptcy and i am paying a little on each of my student loans every month. If my wages are garnishied I will once again be living so far below the poverty line I will never recover. What thre heck can I do?
Question for J. Douglas Hoyes, CA, Trustee :
I declared bankruptcy in 1997 and the legislation did not take affect on student loans until I believe shortly after 1998. I also declared bankruptcy in 2001 I have not been a student in school since December 1995. Does this mean that My studen loans are automatically included in my former bankruptcy in 1997? Dianna
RSS feed for comments on this post.
Leave a comment