New Student Loan Bankruptcy Canada Rules are HERE!
In an absolutely stunning and unprecedented development, on July 7, 2008 the Minister of Labour signed an Order in Council changing the automatic discharge period for student loans in a bankruptcy from ten years to seven years.
This is a stunning turn of events, since the Office of the Superintendent of Bankruptcy is still working on drafting the regulations to the new rules. In other words, we don’t know how the new rules will work, but they are here!
Even more amazing is that in most cases when new laws are passed, all of the law is brought into force at the same time. Not today. Only two sections of the law were changed. First, the new RRSP bankruptcy rule, which allows a bankrupt person to keep their RRSP if they go bankrupt, except for contributions made in the preceding year. And, of course, the new student loan rule.
That’s it. All of the other new bankruptcy rules are still in limbo.
What does this mean to you?
If you are in financial trouble and are considering bankruptcy, and if you have been out of school for over seven years, you should immediately contact a licensed bankruptcy trustee to arrange a free initial consultation to determine if bankruptcy truly is the solution for you. There are other options, which is why a consultation is necessary.
We are awaiting publications of the exact rules; as they become available, I will post information on this blog.
Halelujah !!! Thank you, Doug, you will be hearing from me shortly.
Please note that the discharge is NOT automatic. Even after seven years you must meet the test of having acted in good faith and that paying back the loan will constitute hardship.
Dear Sir, I have a question about Canada student loan forgiveness rules.
In a previous post, you said that according to Subsection 178(1.1) of Bill C-12 (which has yet to be passed),
“If you go bankrupt, after five years you may apply to the court to discharge your student loan, provided you can prove to the court you have acted in good faith, and you will continue to experience financial difficulty if the loan was not discharged.”
I am a Canadian citizen and an Ontario resident, and have attended university in 3 different periods, thus completing 3 degree programs. I completed the first 2 programs over 5 years ago. Then was out of school for a year, and then attended university in British Columbia from 2003 to 2005.
For medical reasons, I was unable to complete my third degree program in BC, and have experinced financial difficulties for the past 5 years. So I am considering bankruptcy, and also applying to a court for loan forgiveness.
When Bill C-12 comes into effect, will I be eligible for loan forgiveness for the portion of my student loans that I received over five years ago, or would my application be refused, because I have been out of school for less than five years?
Thanks in advance for your attention.
Let me answer both questions.
If it have “ceased to be a student” for more than seven years at the start of your bankruptcy, your student loans are automatically discharged in your bankruptcy. There are no tests regarding acting in good faith or hardship.
However, if your student loan was less than seven years old (ten years under the old rules) when you went bankrupt, you may still apply to the court to have it discharged, provided seven years has now elapsed. In that case you must demonstrate that you have acted in good faith, and are unable to repay the loan.
The “clock” starts ticking only when you leave school. Therefore if you left school in 1990, then returned to school in 2000, and left school again in 2002, your seven year period starts in 2002. Even if your last student loan was in 1990, the time period does NOT start when you get the loan, it starts when you cease to be a student for the final time.
Thank you for the news. I had bookmarked this site for the last year and checked back at least once a month. The week following this announcement, I met with a bankruptcy trustee and two days later, signed the papers.
It’s hard to believe that I can truly let go of the stress, and that I don’t have to wait another 2years (I’ve been out of school for 8 yrs now). Part of me still cannot believe that I can *finally* move on with my life and have a fresh start!
- from another “Anonymous” ex-student
After being out of school for more than 7 years, isn’t it possible that the National Student Loan Centre or bank will oppose the discharge?
It is possible that National Student Loans would object to your discharge, but it is highly unlikely; they don’t have the resources to oppose a significant number of bankruptcies, so unless your situation is unusual, I would be surprised if they objected.
Question: If Bankruptcy is FILED only 5 years after last being a student, would it be possible to stay in bankruptcy for another two years, and then be discharged? I have reviewed the act, and did not see anything dealing with this
Can you please provide more detail on what would constitute hardship and good faith in the eyes of the court?
Regarding the possibility of filing bankruptcy in year five and staying bankrupt until the end of year seven, that is a possibility, but the current interpretation of the rules is that the date that matters is when you file for bankruptcy, not when you are discharged. Since the rules are new, the courts are still interpreting the rules for us, so you should consult your trustee for more detailed information.
Regarding hardship, it’s a good question, so I have posted a more detailed answer here: http://www.student-loan-bankruptcy.ca/2009/02/what-constitutes-hardship-with-student.html
The new rules passed a year ago, but they still haven’t been implemented yet? Does this mean the 10 year rule still applies? I’m at 8 years from leaving school, should I wait 2 more years to file??
I have a question with regards to the new law.
I have completed a degree in 2004, but returned to school in 2005. I last received Student Loans in 2005 and withdrew in October of the same year. I have once more returned to try and complete my second degree, but I could not due to financial difficulties and had to withdraw again in 2007. During this time, in September of 2007 we had no choice but to file for Bankruptcy (since our student loans disqualified us for Proposal) but we are still left with our enormous student loans debt. I now have to start paying back, but since my husband has been laid off, this is extremely difficult. So, if I understood the dates correctly, I am only at 3 1/2 years since last being in school, and I don’t see how the new rules could help me out even if we manage to stay afloat for another 3 1/2. Some advice would be appreciated before we make another visit to our Trustee.
First, the new rules have been implemented. As of July 2008, a student loan is automatically discharged in a bankruptcy if you have ceased to be a student for more than seven years at the start of the bankruptcy. So if your student loan is 8 years old, you could file bankruptcy and have the loan discharged.
For the second question, you are correct, if you have only been out of school for 3.5 years, your student loan will not be discharged in a bankruptcy. You can file bankruptcy after five years and request a hardship hearing in court, so that is one option. Another option would be to file a proposal, but that option depends on a number of other factors, and is not a guaranteed way to discharge your student loan. A trustee can provide you with more detailed information.
Please clarify the discharge rules, in relation Section 178, as it relates to student loans in a bankruptcy where the debtor has been out of school for more than 7 years at the time of filing. Is the discharge automatic(if not opposed)? or does it require an additional application after discharge? What are the chances of opposition if the bankruptee meets all requirements of the filing (bank risk opposition/govt opposition)????
If you go bankrupt for the first time, and if you complete all of your duties, and if your income is within normal levels, and if no-one opposes your discharge, you receive an automatic discharge.
That concept should not be confused with student loans being automatically discharged if you go bankrupt after you have ceased to be a student for more than seven years.
In most cases, if you complete your duties you will be automatically discharged.
For more information, contact a bankruptcy trustee: http://www.bankruptcy-canada.ca/emailUs.htm
I am wondering if anyone can tell me (with 110% certainty) whether or not a student who has declared bankruptcy and is not yet discharged is eligible for a student loan?
Thanks
Last school attended was April 2002 and declared bankruptcy June 16, 2009. The student loan credit collection keep on phoning me and asking for payment and telling me even if I'd be discharged, I still have to pay my student loan? She even offered me to file for "payment relief" instead?
Hi Doug.
I was discharged in June after declaring bankruptcy on my student loans in Sept 08. I was last a full time student in August of 2001, so when the new laws were implemented I qualified for relief. I have recently received a copy of my credit report, and my Government student loan is still pending. The two student loans I had through the bank are not. I called the National Student Loan people and they told me that I was still obligated to pay the loan. I asked them to explain why in light of the new rules and they refused to do so. Is this common? Am I being bullied?
Brandi: Yes, you can get a student loan while bankrupt. In most cases your trustee will be required to write a letter to the lender confirming that the trustee will not seize the loan, but otherwise there should be no issues.
Jason: Yes, you are being bullied. Your student loans were discharged in your bankruptcy. You should call again and speak to a supervisor; clearly the government has made a mistake.
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