With tuition fees dramatically increasing over the past couple of years, student debt has become a pressing issue for many Canadians. Students are having to take out large loans for their education, and it can take years or even decades to pay off such a huge sum: about 67% of Canadians graduated with an average debt of over $22,000. Considering that students are only just entering the workforce and getting their lives started, such an amount can be extremely burdensome to deal with.
Polls show that most students land entry-level jobs upon graduating, which do not pay much. The time it takes to gain experience and reach a higher paying level results in skyrocketing interest and delayed payment fees. Many Canadians are able to pay off their student loans down the line, after many years and with a lot of effort. The Ontario Student Assistance Program (OSAP) is able to help many students in Ontario with their post-secondary schooling costs.
However, there are some Canadians who still struggle to make strides in their bills. In such scenarios, debt alleviation through different resolutions might be required. Some former students have started exploring bankruptcy as a possible solution to their increasing debt.
Is bankruptcy the answer to student debt? Here’s more on the subject.
Student Loan Provision
The Bankruptcy Insolvency Act (BIA) was created keeping in mind the surmounting debt that Canadians are under. The Act is typically used to alleviate all manner of debt such as personal loans, credit, and credit card debt.
In previous years, student loans were categorized as an average unsecured debt. However, a more recent provision in the Act allows for student loans to get special treatment. An important clause under this provision is that the person in debt must be out of school for a minimum of 7 years to be able to discharge student debt in their bankruptcy filing.
The 7-Year Waiting Period
As mentioned above, there is a waiting period for student debt to be counted towards an insolvency claim. This is termed the “7-year rule” and refers to the minimum 7 years that must have passed since a student officially ended their studies or were officially registered as a student.
How to Manage Debt Before the 7 years Are Up
If you’ve been out of school for over 7 years, then your student loan debts can be discharged under the Act if you file for bankruptcy. However, what happens in the case that you need to urgently resolve your debt and the 7 years aren’t over yet?
Well, you have the following options:
File a consumer proposal: This involves making an offer of repayment to your creditors, which they can vote to accept or reject. This requires a partnership with a trustee to advise you on the chances of your proposal getting accepted or not. You will need to discuss with the trustee how Student Loan debt will work in this process.
Get in touch with your school: The student loans office at your school can help you in your loan repayment scheme. They can negotiate a different payment plan or offer repayment assistance to help you navigate your debt with more ease. Most offices will have a Repayment Assistance Plan, with which you can request a temporary reduction in payments or even more time to pay off your student loans.
Hardship reduction: If you are eligible, you may be able to apply for a reduction wherein the government will lower your rate of interest for a few years. Proving that you are unable to make payments in full towards your student debt is considered as one of the eligibility criteria. Following this, the principal owed is also lowered after the low-interest period.
File for bankruptcy: Although the debt may not be dischargeable you can still file for bankruptcy with Student Loan debt. The bankruptcy will give you relief from collections for the period of the bankruptcy and then once it is over they will be able to resume collections. However, there are situations that allow a person to go to court after this and ask to have it included in the bankruptcy as they are still unable to pay the balance.
It is important to note that while these options can help you better manage your student debt, they do not always decrease the total amount owed so be aware. Your interest and amount will keep building up and only keep you in debt longer. Therefore, filing for bankruptcy for your student loans is the best option to truly reduce your student debt once and for all.
Dealing With Many Financial Burdens
Dealing with debt in general can be a frustrating and exhausting process. It is not an uncommon occurrence for student loans to pile onto existing ones, or new debts adding to your student loans. Dealing with so many debts at once can seem overwhelming, especially if they come from different sources. In addition to student debt, for example, there can be credit card debt, loan debt, etc.
Consulting an insolvency expert at this time may be beneficial, as your debt situation may be complicated and overloaded. Bankruptcy trustees can help you resolve your student loans as well as any other loans you may have by suggesting a personalized debt-alleviation solution that works for you. If your 7-year waiting period is still underway and you are not yet able to file for bankruptcy for your student loans, then consulting with a licensed professional will help you arrive at a more feasible re-payment method.
To conclude, filing for bankruptcy for any outstanding student loans is a viable solution for many Canadians, especially if you’ve graduated 7 or more years ago. If you’re a more recent graduate with a lot of debt, then there are other debt-alleviation solutions available that can be tailored to fit your lifestyle and existing financial burdens.
To learn more about student loan debt and bankruptcy services, call Kevin Thatcher & Associates at 1-888-702-9801 or contact us here.