What Constitutes Hardship with a Student Loan after Bankruptcy in Canada?
Under the new student loan and bankruptcy in Canada rules implemented in July, 2008, a student loan is automatically discharged if you have ceased to be a student for more than seven years when you file bankruptcy.
In addition, if more than five years have elapsed between the time you ceased to be a student and you go bankrupt, you may make an application to bankruptcy court to have your student loans forgiven. It will be up to the bankruptcy court to decide whether or not they forgive your loans, either in full or in part. To obtain forgiveness, you must demonstrate “hardship”.
There is no clear definition for what constitutes hardship; each bankruptcy court across Canada may use a slightly different definition. However, in general, hardship is a simple concept: having to continue to pay your student loans after bankruptcy would be a financial hardship for you.
For example, if you were forced to leave school early without graduating, perhaps due to a medical problem, and you are now working at a minimum wage job, the court would likely determine that you would suffer financial hardship if you were required to continue paying your student loan. The court would consider the benefit you received from your education (in this example, not much, since you were unable to graduate), and your current income (again, in this example, not much).
Contrast that with the example of a person who graduates as a doctor from medical school, with $150,000 in student loans. On the surface it may appear to be a hardship for him to repay the loans, but if he is earning a doctor’s income it is unlikely that the court will allow for the loans to be discharged due to “hardship”.
Obviously most examples are somewhere between these two extremes. I suggest you contact a local bankruptcy trustee, who will be familiar with the court’s approach in your area. They will probably put you in touch with a local bankruptcy lawyer, who can make the application to court on your behalf. You can apply for relief on your own, but in most cases it is wise to have an experienced lawyer making the application on your behalf.
Hi, I have been following these posts with interest.
Just so I’m clear, I have been out of school for about 9 years. I claimed bankruptcy and was discharged several years ago. Under the new legislation I can file to have the student loans discharged under my former bankruptcy? I have been trying to find a lawyer in the Toronto area to explain, with no luck.
The answer is yes, you can apply to court to have your student loans discharged. There is no guarantee that the court will discharge your student loan, as the court will apply certain conditions. For the name of a lawyer that can assist you, contact a trustee for a referral.
Hi, I have also been following this with much interest. I will be coming up on my 7 years in June and after applying for relief and reductions (no luck) after being in a severe accident that left me unable to work for almost 3 years I am now back working. I aquired alot of debt due to this accident and my only option is bankruptcy. I have been putting it off in order to ensure my loans will be included as they are a large chunk of what I owe.
If I go bankrupt after June my loans will automatically be discharged? Just so I am clear.
Yes, if at the time you go bankrupt you have “ceased to be a student” for more than seven years, your student loans will be automatically discharged when you are discharged from bankruptcy. A bankruptcy trustee can provide you with more detailed information: http://www.bankruptcy-canada.ca/emailUs.htm
Does one have to have been out of school for seven years, or do the loans have be seven years old? The previous legislation seemed to suggest that the loans must be ten years old, not that a student must have been out of school for that long. Or am I wrong?
I took out student loans in 1995. I went back to school in 2001 and took another loan in 2004. Will the original loans be included in bankruptcy. I finished both programs.
Hi,
This seems to be a "flashy" new rule of "hardship" after bankruptcy if a student has been out of school for 5 years.
It seems to lack meat and substance.
Out of curiosity, and precedence, has anyone actually been Victorious in showing "hardship" to have there student loans erased after 5 years in a bankrupcty….
or is this rule just smoke and mirrors ?
Curious.
Dear Douglas,
I recently declared bankruptcy and I will discharged after 9 months. However, my student loans were not included in this bankruptcy. As I have only been out of school for one year. Currently, I am paying a monthly bankruptcy fee (a large sum) and I work full time. I need to know whether I am obligated to make payments to my student loans while I am still paying off the bankruptcy fee per month?
In other words, does CSLP have the right to ask me for payments if I am still making payments for bankruptcy? Could you kindly confirm.
Thank you,
My answers:
The rules are based on when you ceased to be a student, not when you received the loan. If you have ceased to be a student for more than seven years when you declare bankruptcy, your student loans are automatically discharged in the bankruptcy. The age of the loan is not relevant. It's your status as a student that matters.
If you got a student loan in 1995, and then returned and got a student loan in 2004, then went bankrupt in 2009, you were still a student in 2004, so your you have not "ceased to be a student" for more than 7 years, so your loans, even the one from 1995, would not be discharged in bankruptcy.
As for the hardship rule, yes, there have been numerous cases where the courts have discharged a student loan due to hardship. If you are a single mother with little income, and a job not related to your field of studies, the court may find in your favour. If you are a doctor earning $200,000 per year, the court will not find hardship. Each case is different.
Finally, while you are an undischarged bankrupt you are not required to make loan payments. If your loan was only one year old, you will be required to make payments again when you are discharged.
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