STUDENT LOANS AND BANKRUPTCY (OR CONSUMER PROPOSAL)
Student loans can be discharged under a bankruptcy or proposal proceeding but there are exceptions and limitations.
We must look to Sections 178(1)(g)(h) and 178(1.1) of the Bankruptcy & Insolvency Act (“BIA”) to understand what the paremeters for discharging student loans are.
Essentially the Sections were written expressly to deal with government backed loans, presumably with a view to protecting the interests of taxpayers whose dollars are being invested to fund the academic pursuits of other citizens.
The section specifically states that it targets “any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students” thereby not apparently being applicable to student loans from other countries or that were loaned outside of the purview of the prescribed legislation.
It sets out a time frame after which the loans may be automatically discharged under the BIA – that time frame being seven (7) years from the end of study period. In other words seven years from the end of the last semestar for the course of study for which the student loan applied.
However, following a term of five years after the prescribed date “if the court is satisfied that
(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and
(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”
The court “may” dischare the loan on the basis of hardship. It is important that the bankrupt be able to demonstrate both elements – financial hardship and good faith.
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