Can my student loan be included in a bankruptcy?Ginsberg Gingras
After years of study, entrance into the labour market is sometimes difficult. It is then normal to feel suffocated by our student loans that seem overwhelming. The accumulating interest and the payments that start and add to the other obligations do not allow everyone to pay as we would like our student loan debt. Is bankruptcy an option to clear one’s student loan when one is unable to make the monthly payments?
$ 26,000 Student Loan
The student loan is a frequent debt that can create a sense of vulnerability among young workers. They are often on the labour market without having been able to settle their student loan. According to the Canadian Federation of Students, the average student debt for a 4-year university program would be around $ 26,000.
Also, when it comes to repaying student loans, it is not uncommon for graduates to accumulate other payments and financial liabilities.
Not surprisingly, many people who consult licensed insolvency trustees (LIT) have a student loan.
Include your student loan in bankruptcy
When a person does not have the resources to repay their debts, which very often include student loans, bankruptcy may be a possible solution.
Student debts are treated in a particular way in a bankruptcy. In fact, the student loan must meet certain conditions to be erased in a bankruptcy. The same conditions also apply in the case of a consumer proposal, an alternative to bankruptcy.
The rule is simple: Whether it is part-time or full-time, there must be 7 years or more between the end of your studies and the date of the bankruptcy.
If 7 years have passed between the signing of your bankruptcy and the end of your studies, your student loan may be included in the bankruptcy and you will be released from it. If the deadline is less than 7 years, bankruptcy will not be able to free you from your student loan.
It is also important to know that a return to school, full-time or part-time, pushes the deadline again. It is then necessary to restart the calculation of the 7 years. It is, therefore, necessary to refer to the date of the last studies to calculate the 7 years rule.
Other options for paying your student loan
Bankruptcy and the consumer proposition are solutions that you will want to use as a last resort. Before you get there, there are other options available to you:
- Take a payment agreement
Try to come to a payment arrangement with the institution that originally gave you a student loan. Try to lower your monthly payments, even if you have to extend the repayment period.
- Make a debt consolidation
It is possible to call on a debt consolidation with a financial institution. You will consolidate all your debts together, including your student loan. You can then settle in one payment per month for most of your debts.
Debt consolidation is available in the majority of financial institutions and is accessible to consumers.
- Government assistance programs
If your debt consolidation would not be accepted, the governments of Quebec and Ontario have set up programs to help consumers stuck with a student loan. These programs make it possible to reduce repayments and even to suspend payments during more difficult periods.
Deferred repayment program (Quebec).
OSAP Repayment Assistance Program (Ontario).
- Establish the nature of your loan.
Some banking institutions offer “Student Loans” that are personal lines of credit or personal loans at more favourable rates for students. Not being “real” student loans, these financial products could be included in a bankruptcy or consumer proposal. It is therefore important to consult a counsellor to determine the nature of your debt.
- An exception to the 7-year rule
Finally, there is an exception if you have to consider bankruptcy or a consumer proposal but you do not meet the 7-years rule.
Under certain conditions, a period of 5 years may be accepted to include a student loan in a bankruptcy or a consumer proposal. For that, the court must determine that the repayment of the student loan causes excessive financial difficulties to the consumer
WHERE CAN YOU TURN FOR HELP?
If you are having financial problems because of your student loan debts, we are here to help you. Do not let your student loan slow you down in your new projects and your career. Contact one of our counsellors to find out what solution might apply to your situation!