(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 seven years after the date on which the bankrupt ceased to be a full- or part-time student.

In summary, government guaranteed student loans are only automatically discharged if you have “ceased to be a student” for more than seven years prior to when you declare bankruptcy.

What does “ceased to be a student” mean?  In general, it means that once you leave school, you have ceased to be a student.  For example, if you got a student loan in September 2000, and graduated in May, 2004, you ceased to be a student at the end of May, 2004.  You would probably want to avoid filing bankruptcy prior to June, 2011 (seven years after you ceased to be a student).  They key here is that it is not when you got the loan, but when you ceased to be a student that matters.

Let’s continue the example by assuming that you went back to schoold for a year, from September 2007 to April 2008.  You therefore were a student, again, until April 2008, so you ceased to be a student in April, 2008.  In that example your student loan would not be automatically discharged in a bankruptcy prior to May 2015.

A strict reading of the legislation indicates that it is ceasing to be a student that is the critical date.

However, to complicate this discussion, there was a court case in 2005 that addressed this issue (Re Ledoux, 2005 SKQB 75, 8 C.B.R. (5th) 225).  In this case the bankrupt left school in 1989 (her education was funded in part by Canada student loans).  She then returned to school between 1992 and 2000, but did not receive any student loans to return to school.  She then went bankrupt in 2004.

The Bankruptcy Registrar (the judge) in this case decided that, for the purposes of the student loans, she ceased to be a student in 1989.  That was the last year she was a student for which she received student loans.  So, in her case, her student loans were discharged in the bankruptcy.

This case indicates that once you cease to be a student funded by government guaranteed student loans, the seven year period begins.  If you return to school but don’t get any further student loans, the seven year period does not restart.

Obviously this is good news for any former students who return to school, and pay for it without government student loans.

A word of caution: This case is a case from Saskatchewan.  Decisions of the Saskatchewan court are not necessarily binding in any other province.  The courts will typically consider decisions of other courts, but they are not necessarily bound by them.

To conclude, if you were a student, and then returned to school, you should speak to a licensed bankruptcy trustee in your province to get advice on how to determine the exact end of study date before you make a decision to file bankruptcy.

Nothing.

Well, something happened. Our duly elected Members of Parliament went on vacation. They will be returning to the House of Commons on January 29, 2007, so obviously nothing will happen in January. The only official word on the status of what is now called Bill C – 47 can be found on the House of Commons website; click down to item #13 under Ways and Means, and you will see the above note.

That’s it.

Stay tuned to this space; we will report as more information becomes available.

The key sections of the Bankruptcy and Insolvency Act are 178(1)(g) and 178(1.1) which state:

178. (1) An order of discharge does not release the bankrupt from:
(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;

178. (1.1) At any time after ten years after a bankrupt who has a debt referred to in paragraph (1)(g) ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that
(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the loan; and
(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the liabilities under the loan.

By virtue of section 178(1.1), the Act has provided the courts with the right to discharge student loans once 10 years have past for a prior discharged bankrupt. The issue becomes what is needed to be demonstrated to the court that the student loans can be discharged.

As outlined in part (a) & (b), there are tests established. In relative terms, the test for good faith under (a) tends to be one that can be demonstrated to the courts satisfaction. The difficult part of obtaining the order is the part that deals with “…and will continue to experience financial difficulty…”. There currently are no rules to what the court is to follow with respect to length of time and definition someone’s inability to pay. To make it even more confusing is that prior court cases have varied depending on City and Province.

The fact is that several people across Canada have been able to obtain a section 178(1.1) order to discharge their student loans. Therefore, we would suggest you speak to a Trustee or lawyer about your situation and options.

Personal bankruptcy is only an option if it has been more than ten years since you left school. A consumer proposal is also an option, but again, if the loan is less than 10 years old it is difficult to get the creditors to accept a deal.

Another option is credit counselling, where a non profit credit counselor contacts student loans on your behalf, and works out repayment arrangements.

This is a good option where you have the ability to repay the loans, but you need an extended payment plan. There have been cases where credit counsellors in Canada have negotiated repayment terms as long as nine years.

While I would not typically recommend that anyone enter a nine year loan agreement (unless it’s a house mortgage), for a select few this may be a viable option. A list of not for profit credit counselors can be found at Credit Counselling in Canada.

Tagged as student loan, credit counselling, consumer proposal, personal bankruptcy, bankruptcy

I filed bankruptcy in Canada in 2000 and was discharged in that same year. I have been out of school since 1996 and I am currently owing with interest $25,000.00 in student loans ($15,000.00 in Canada Student Loans). Is there anything that I can do to get rid of these student loans? It is very frustrating because the course that I took that led me to this student loan has never landed me a job in that area.

The answer is that yes, it is possible to go back to Bankruptcy Court and make an application to court to have your student loans partially or fully discharged.

To do this it must be at least 10 years since you were last a student. In the question above it appears that you have been out of school for 10 years, so you probably qualify.

Second, you must convince the court that continuing to pay the student loans is causing you undue hardship. The fact that you have not been able to find a job in your area of study will help your case. You will also have to demonstrate that you have looked for a job, but the jobs you have are not sufficient to allow you to repay the student loan. You should probably also demonstrate to the court that you have attempted to refinance your student loan through a debt consolidation loan, or make other repayment arrangements.

To make an application to court you should contact your trustee for guidance. Depending on where you live they may refer you to a bankruptcy lawyer for assistance.

If the court rejects your application, it may be possible to file a consumer proposal as a means of discharging your student loans. You should contact a trustee for further information.

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-time or part-time student.

The Act therefore indicates that it is not ten years from when the student got the loan; it’s ten years from when the student ceased to be a student. As an example, if you got a student loan in September, and finished school the following April, the ten years starts in April, not September.

To further confuse matters, the Canada Student Loan Regulations, section 4.1, state that:

Subject to paragraph 3(2)(b), a borrower ceases to be a full-time student on the earliest of
(a) the last day of the last confirmed period,
(b) the last day of the month in which the borrower no longer meets the applicable minimum percentage referred to in the definition “full-time student” in subsection 2(1), and
(c) the day on which the borrower’s interest-free period is terminated in accordance with subsection 9(4). SOR/95-331, s. 2; SOR/96-369, s. 3; SOR/2004-121, s. 2.

Therefore the period starts at the end of the month. As an example, if your final exam was completed on April 15, that’s the day you ceased to be a student, but the 10 years is calculated starting at April 30.

These rules change constantly, so contact a trustee for further information.

student loan, bankruptcy

When new bankruptcy laws in Canada are passed, in typically takes at least six months for the laws to come into force, primarily because the civil servants must write up the rules and regulations that practitioners such as trustees in bankruptcy use to interpret the laws.

If Parliament does further review the issue of student loans and bankruptcy in Canada in the fall of 2006, it is conceivable that the review could be completed in the winter of 2006, which means that perhaps the new rules could be in force by the summer or fall of 2007.

Or not.

At this point, without any direction from the government, this is purely a guess. Again, stay tuned to this blog for further information. Alternatively, you could contact a local trustee for further information. Here are some links that you can use to research your options for dealing with your student loan debt:

Moneyproblems.ca is Canada’s oldest and most informative web site devoted to helping Canadians deal with their money problems; it has links to trustee’s and credit counsellors across Canada; use the search feature to get information about student loans, bankruptcy, and credit counselling.

Personal Bankruptcy Canada Blog, Canada’s oldest and largest personal bankruptcy blog, where readers can post questions and get answers from trustees.

Provinces in Canada have the following bankruptcy web sites (from west to east):
Bankruptcy British Columbia
Bankruptcy Alberta
Bankruptcy Saskatchewan
Bankruptcy Manitoba
Bankruptcy Ontario
Bankruptcy Quebec
Bankruptcy Nova Scotia
Bankruptcy Newfoundland and Labrador

Individual cities in Ontario have the following bankruptcy blogs (including Ontario Personal Bankruptcy Blog, dealing with bankruptcy related issues in Ontario):
Bankruptcy Brantford Blog
Bankrutpcy Cambridge Blog
Bankruptcy Chatham Blog
Bankruptcy Guelph Blog
Bankruptcy Hamilton Blog
Bankruptcy Kitchener Blog
Bankruptcy London Blog
Bankruptcy Mississauga Blog
Bankruptcy Scarborough Blog
Bankruptcy Toronto Blog
Bankruptcy Windsor Blog

General information can be found about bankruptcy alternatives and debt consolidation loans.

Finally you can search the web for: student loans, student loan bankruptcy Canada, debt consolidation loan, credit counseling, consumer proposal, personal bankruptcy, and bankruptcy Canada.

Even more bizarre, as we await further details on Bill C-55, a private member, Ms. Charlton of Hamilton, has introduced a private member’s bill, Bill C-270, which contains proposed changes to the Bankruptcy & Insolvency Act. While these changes have nothing to do with student loans, and the member is not a member of the government and therefore it is unlikely this private member’s bill will become law, it is interesting that members are proposing changes to the Bankruptcy & Insolvency Act even before Bill C-55 from the previous session of Parliament becomes law.

I interpret this to mean that we will not see any changes to student loan bankruptcy legislation in 2006, although, as always, stay tuned to this blog for more information.

Today I met with a person who told me the following about their student loans. (I have omitted some details for confidentiality reasons). I will call this person Bob, which is not their real name.

Bob’s student loans are six years old, so a bankruptcy under the current rules will not discharge his student loans. In 2003 Bob’s taxable income was zero. He would have been entitled to a $1,200 tax refund that year, but Canada Revenue Agency applied $600 of the refund against his student loans, so Bob received a refund of $600.

In 2004 he was entitled to a $1,800 refund; his taxable income was $8,000, and $1,200 was forwarded to student loans. Bob was told by the student loans people that $1,200 represented the interest owing on the loans, so the balance of $600 was given to him.

On his 2005 taxes that he filed in February, with a taxable income of $11,000, he was entitled to a $4,000 refund; the entire refund was seized on account of the federal portion of his student loans.

What I found most interesting was that in 2003 and 2004 student loans did not take all of his refund, but in 2005, when his taxable income was only slightly higher than his taxable income in 2004, student loans took his entire refund.

Obviously something has changed between 2004 and 2005. There may be issues with Bob’s situation that I am not aware of, but Bob had an interesting theory.

He believes that because the federal student loans people realize that if Bill C-55 becomes law this year many former students will declare personal bankruptcy to discharge their student loans, they are now collecting all they can from former students with student loans six years old and older, since these are the loans most likely to be discharged in a bankruptcy.

I have no idea if this is true; I am only repeating anecdotal evidence. If anyone else has experienced something similar, please post a comment to this blog entry.

If you have student loans that are overwhelming, I always suggest that you contact a trustee to see if personal bankruptcy or a consumer proposal is a possible solution to your situation.

Until Bill C-55 becomes law, it may be necessary to explore other bankruptcy alternatives, including debt consolidation or negotiating with student loans yourself to deal with student loan problems.

As mentioned in our previous student loan bankruptcy blog entry, the Senate passed Bill C-55 with no debate just before Parliament was dissolved on the understanding that the new rules would not come into force before June 30, 2006 to give the Senate Committee on Banking, Trade & Commerce an opportunity to review the legislation, and make whatever changes are required. In a somewhat ironic twist, this commitment was made in a letter from then Liberal Industry Minister David Emerson, who has since crossed the floor to become a minister in the new Conservative government.

What does this all mean? According to Parliament’s web site, the Throne Speech opening the new session of Parliament will be read on April 4, 2006. It will presumably take a period of time thereafter for the Senate Committee on Banking, Trade & Commerce to convene hearings and call witnesses, so it is unlikely and hearings will occur before early May, 2006.

If hearings last for two weeks, and the Committee takes a further two weeks to make it’s recommendations, the Committee’s report may be available by early June, assuming Parliament has not already risen for the summer break.

Government officials at Industry Canada, the division of the government responsible for putting the legislation into the written rules followed by trustees, will no doubt want a few months to draft the rules, seek input from stakeholders, and then give all stakeholders a few months notice before .

Again, what does this mean? In my opinion (and this is purely a guess), the only way the new rules will come into force on July 1 will be if the Senate forgoes hearings, and the rules pass as noted in Bill C-55. If the Senate does hold hearings, it is conceivable that the new rules will not come into force before January 1, 2007.

If you are overwhelmed by your student loan debt, contact a licensed trustee to fully explore your options, and your bankruptcy alternatives.