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Student Loans

How bankruptcy affects student loans

Student loan debts can contribute to mounting, unpayable debts which may result in you filing for bankruptcy. However, some student loans may not be erased by bankruptcy. Whether or not your student loan debt is eligible for discharge depends on when you stopped being a full time or part time student.

If you attended school within the last 7 years

If you attended school within the last 7 years your debt will not be erased by declaring bankruptcy, and you must repay it. Collections will stop while your trustee is administrating your file, but interest will continue to accumulate on your student loan debt.

If you have been out of school over 7 years

If you file for bankruptcy 7 years or more after you were no longer considered to be a full time or part time student, your student loan debts are eligible for discharge and are erased by bankruptcy.

Hardship provision: if you have been out of school for 5 years

In some instances, if the court deems repaying your student debt will cause undue hardship, the court may reduce the period where your student loan debt is erased by bankruptcy 5 years after leaving school. You will have to make an application to the court directly, usually though an insolvency lawyer.

To determine your eligibility for this hardship provision, the court will examine your past financial activities, including how you used your student loan money and if you have completed your educational program. The court will enact this hardship provision only if they are satisfied that you:

  • are experiencing overwhelming financial distress and are unable to repay your debts
  • acted in good faith in your attempts to repay your student loan debt

Repayment Assistance Plan

Bankruptcy is always the final option. The federal government offers a Repayment Assistance Plan to help manage the repayment for provincial or territorial government student loans. This plan enables eligible borrowers to repay what they can reasonably afford.

Can I apply for a student loan if I have declared bankruptcy?

Yes, you can apply for a student loan during your bankruptcy. However, often they will require some information from your trustee and your credit rating may be taken into account when determining your eligibility.

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