With the cost of education today, many students seek the assistance of Canada’s student loan program in order to finance their studies. This means that when entering the work force young people are already starting their lives with debt. While the student loan department will often work with students to set reasonable and affordable repayment terms, when other debt issues become a problem, meeting these obligations can become difficult.
So what happens with a student loan debt if you file for bankruptcy? The short answer is that you can only rid yourself of the obligation to pay a student loan through filing for bankruptcy if that student loan is more than seven years old.
In bankruptcy there are certain debts that are not released when you get your discharge certificate. This means that even if you file for bankruptcy, you would still be responsible for paying those creditors when your bankruptcy is over. Student loans are listed as a debt that is not released through filing for bankruptcy but the Bankruptcy Act does list some criteria after which time the student loan debt can be released. In order for you to get released from a student loan obligation in a bankruptcy filing, the loan must be more than seven years old from the time that you ceased to be a part-time or full-time student.
The definition of when you ceased to be a student can be a bit tricky. For that reason, it is recommended that you contact the Student Loan Centre to determine your study end date. Programs such as interest relief, can change your study end date. Before entering into a bankruptcy make sure you know whether or not your student loan is older than seven years.
While you are in bankruptcy, or paying your consumer proposal the student loan is accruing interest. The student loan centre is not legally able to take collection action while you are under the protection of the Bankruptcy Act. This means that the debt can be increasing and the consumer has no idea as they are not getting calls or statements. As soon as the bankruptcy or proposal is completed the student loan centre will start collection activity for the new amount, including all the accumulated interest.
While you are under bankruptcy protection, it is recommended that if you know your student loan is going to survive your bankruptcy, you continue to make payments. The student loan centre will accept payments, although they may need a form signed by your Trustee authorizing the arrangement.
By setting these restrictions for student loan debt in bankruptcy, the government is ensuring that there is ample time for the student to enter the work force, secure employment and to make every effort to pay back the funds they borrowed to earn their education.
