Can a Student Loan Be Included in a Bankruptcy or Consumer Proposal?
High tuition fees, combined with financial obligations while you study and transition into work, can leave you burdened with significant debt in your first years in the labour market. Are you having trouble repaying your student debt and considering personal bankruptcy or a consumer proposal?
At Bernier & Associates in Ottawa and Gatineau, we’re well-informed about what debts can and can’t be included in these debt relief options. This article will help you determine whether one of these solutions can unburden you from your student loan debt.
Understanding student loans
To determine whether your student loan can be erased by filing for personal bankruptcy or submitting a consumer proposal, you must first know whether your debt is a student loan. A student loan is issued by a bank or credit union and guaranteed by the government. Be aware that some financial institutions offer loans to students, which don’t have this guarantee. These debts are personal loans, not student loans. Therefore, they’re treated as any other type of personal debt when you are insolvent.
Conditions to respect
To be included in a bankruptcy or consumer proposal, a student loan must meet this condition: at least seven years must have passed since the end of your full- or part-time studies. Be aware that if you return to school, this seven-year period begins after your most recent period of study ends.
In some cases, the years required after the end of studies can be reduced to five if you can prove extreme financial difficulty. You’ll have to convince the court of your good faith by showing you used your loan appropriately, made efforts to repay it and used any available repayment assistance programs.
Finally, note that although filing for personal bankruptcy doesn’t prevent you from obtaining a future loan for your studies, it can make the process more complex. Therefore, exploring other options, such as a payment arrangement or debt consolidation, may be beneficial. At Bernier & Associates, our licensed insolvency trustees in Ottawa and Gatineau can advise you and help you determine whether filing for personal bankruptcy or applying for a consumer proposal is the best solution for your situation. Contact us today.