Student loan bankruptcy in Canada is complex. This type of debt is subject to specific rules. The Bankruptcy and Insolvency Act contains special provisions on this subject. Here are some important things to know if you or your loved ones are facing this situation.
Processing student loan debt: 7-year time limit
The Bankruptcy and Insolvency Act stipulates that a student loan debt can be treated like any other debt. However, at least 7 years must have elapsed since the end of the individual’s studies.
In summary, the situation is as follows:
- A person files for bankruptcy or a consumer proposal.
- It’s been 7 years since he completed his studies.
- His student loan debt may be considered dischargeable or subject to propsition.
Student loans and bankruptcy: Completion of studies
The date on which studies are considered completed is subject to conditions. Take, for example, the case of an individual returning to school to take courses not directly related to his or her initial diploma. The date is then recalculated according to the end of these new courses.
Consumer proposal and debt burden
Even though student loan debt is generally considered non-dischargeable, it is still possible to file a consumer proposal. However, the government, represented by the Ministry of Education, tends to vote against this proposal. In any case, if student loan debt represents a significant proportion of total debt, this can have a negative impact on the process. Approval of the proposal is then compromised. Creditors must vote in favor of the proposal by 50% + 1 (one $ = one vote) for it to be accepted.
What happens after liberation?
In the event of bankruptcy, if the debt is not dischargeable, the government can take action to recover the debt once the trustee has been released from his administration. Furthermore, in the context of a consumer proposal, if the 7-year period has not elapsed, it is possible that a certain amount of money has been repaid during the process. In addition, if there is an outstanding balance on the student loan debt, payment of the difference will be required.
By the same token, a student loan debt can be treated like any other debt in the event of bankruptcy or a consumer proposal in Canada. However, more than 7 years must have elapsed since the end of the individual’s studies. Otherwise, the debt is generally considered non-dischargeable. This has significant implications for insolvency proceedings and subsequent financial consequences. Faced with what can seem a complex process, don’t hesitate to call on us to handle your bankruptcy cases.
