Can You Declare Bankruptcy On Student Loans?

In the last ten years, the number of federal and provincial student loan borrowings has increased considerably – and so has the number of student loan bankruptcies.

In the late 1990s, amendments to the ‘Bankruptcy and Insolvency Act’ made it impossible for student loan debt to be discharged if the individual filed for bankruptcy within 10 years of completing their studies. More recently, the non-dischargeable period was reduced to 7 years.

Unfortunately, many Canadians miscalculate the 7-year waiting period and miss it by a few days, weeks, or months – which means that their student loans will not be forgiven.

That said, you can declare bankruptcy on student loans, especially if you are overwhelmed by unsecured consumer debt that may also include credit card debts, provided you satisfy the requirements.

The waiting periods for student loan debt

A personal bankruptcy or a consumer proposal can provide relief for Canadians who feel burdened by their student loan debt. For your student loan to be discharged, you must wait seven years from the date of the completion of your education before filing for bankruptcy.

To ensure that your 7-year waiting period is accurate, you should keep in mind that it extends from the last day of your final exams for the last semester, or the date the school officially closed, to the date that your Licensed Insolvency Trustee receives the Certificate of Appointment from the Bankruptcy court, which should be in 1 to 2 days after filing for bankruptcy.

You can increase your chances of success by adding 30 to 90 days, or seeking the aid of a professional to help ascertain that the 7-year waiting period is satisfied.

Benefits of filing for personal bankruptcy after the 7-year wait period

If you file for personal bankruptcy at the right time, the student loan that remains will be automatically discharged. Similarly, if you make a timely consumer proposal, then the loan will be automatically discharged after satisfying your obligations as per the consumer proposal.

If you file for personal bankruptcy after 5 years from the end of your education, but before 7 years from the end of your education, you will have most (or all) of your unsecured debt discharged – but not the student loan. However, you may qualify for a court-ordered student loan discharge under a “hardship provision.”

It is best to discuss your options with a licensed insolvency trustee if you intend to eliminate your student loan debt by filing for personal bankruptcy.