Finally! After five years, my bankruptcy erased my student loan debts
Do you have student loans that were not erased by a bankruptcy or consumer proposal? Most likely, you filed before you had been out of school for seven years — which is the minimum required period to include student debts under the Bankruptcy and Insolvency Act (BIA).
If you completed your consumer proposal or bankruptcy, and your student loan debt was not erased, you may not need to file a second bankruptcy or proposal. If you have been out of school for at least five years, you can make a court application to have your student loans discharged by your prior bankruptcy or consumer proposal.
The court will not always grant your request. However, the following summary of what the court considers relevant, what documents the court wants to review, and answers to common questions, can improve your chances of a successful application.
What the court will consider
In deciding to extinguish your student loan debt, the court’s main two questions are:
- Will the student loans continue to give you hardship if they are not erased?
- What attempts did you make since leaving school to pay down your student loan debt?
These questions come from Section 178(1.1) of the BIA, which reads:
(1.1) At any time after five years after the day on which a bankrupt who has a debt referred to in paragraph (1)(g) or (g.1) ceases to be a full- or part-time student or an eligible apprentice, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt 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 considers numerous factors in answering these two questions, including:
| Purpose, use and outcome of the student loans |
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| Efforts to repay the student loans |
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| Income, employment and lifestyle |
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| Circumstances surrounding your Bankruptcy |
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| Mitigating factors |
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Documents to Gather
The following documents — along with any additional information as discussed with the Licensed Insolvency Trustee — will support your application to the court to have your student loans discharged under the five-year rule:
| Bankruptcy / Consumer Proposal |
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| Income Taxes |
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| Income & Expenses |
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| Assets & Liabilities |
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| Education & Employment |
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| Summary of Circumstances |
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Frequently Asked Questions
Can Canada or provincial student loans object to my application?
Yes. No one knows ahead of time whether a creditor will object to your application. You make the application first, and the creditor may oppose once they receive the notice of the court hearing.
Does the Licensed Insolvency Trustee make the application for me since it involves my Bankruptcy?
No, you make the application yourself, possibly with the help of a lawyer. The Licensed Insolvency Trustee may have some examples of documents you can review to help you prepare your application.
What does it cost to make the application?
The cost varies province to province. If there was no court hearing in your Bankruptcy or Consumer Proposal, you pay the court filing fee. The cost is currently (2020) $50.00 in B.C.
Life-Changing Debt Solutions
If you have questions about bankruptcy or a consumer proposal — including what debts you would be able to include or whether you would benefit from alternative solution, start with a call to MNP.
Under Canadian bankruptcy law, Licensed Insolvency Trustees must provide a Free Confidential Consultation to review your financial situation and discuss options to deal with unmanageable debt. They must also answer any debt-related concerns you have and provide an unbiased opinion as to your best path forward.
