On July 7, 2008, the Bankruptcy and Insolvency Act was amended. Previously, a student loan could not be automatically discharged in a bankruptcy or consumer proposal unless the student had ceased full or part time studies for 10 years at the date of bankruptcy or proposal. This period has now bee reduced to 7 years. Previously a student who went bankrupt or made a proposal before the 10 year period had expired had to wait for the 10 years to expire before they could apply to the bankruptcy court to have the loan included in the earlier bankruptcy on the grounds of hardship. this period has now been reduced to 5 years.

For example, A has an end of study date of May 2003. A makes an assignment into bankruptcy May 2007. A is discharged in February 2008. As the bankrupt was not out of school for 10 years at the date of bankruptcy, upon the discharge of the trustee, the student loan creditors rights were revived and collection ensured. Previously, the bankrupt would have to wait until June 1, 2013 (10 years) to make a hardship application to have the discharge granted in 2005 effective over the student loans. The amendments to the Act now provide that the hardship application can be made any time after June 1, 2008.

The criteria for relief under a hardship application is that the bankrupt has acted in good faith in paying his student loans based on reasonable ability to pay AND the debt is a present and future financial burden. The hardship application is not a second bankruptcy. If the bankrupt makes an application after the 5 year and is granted relief by the court, the effective date of the discharge of the loans would be the date of discharge of the bankruptcy.

Fr_Chuck

This time frame is for the "hard ship" but the real fact is, the government secured student loan is not really dischargable, I have never seen a case where it was actually allowed to be discharged.

Iknowalotofstuff

To those out there who do not think that student loans granted under "the Canada Student Loan Act, the Canada Financial Assistance Act or the enactment of any province for the granting or guaranteeing of loans" can be discharged under hardship applications as noted by Fr_Chuck better think again. I have assisted over 150 student loan debtors obtain hardship discharges so I know for a fact that at least 150 students have obtained discharges under s. 178 1.1 of the Bankruptcy and Insolvency Act.

If the intent of the act is not to discharge student loans like the American Bankruptcy system then why have any time limits at all. The intent of the BIA is to provide the honest but unfortunate debtor with a fresh start free of oppressive debt and reintegrate the rehabilitated debtor into society. This includes student loans. S. 178 1(g) prevents a student loan from being automatically discharged before the bankrupt has been out of school for 7 years. This time period gives the bankrupt and the student loan creditor sufficient time to pay if they receive an economic benefit from the education OR sufficient time for the bankrupt to determine if there will be an economic benefit from the education. No student receiving a substantial economic benefit from his / her education should be discharged from paying their loans in any shorter time period.

On the other hand, there are bankrupts who receive very little economic benefit from their education, are employed in some other field of employment and who have limited ability to pay their loans. In these case, massive student loan debt is an impediment to any reasonable standard of living. These bankrupts need the s,. s. 178 1.1 relief. This is the reason for having the 5 year "hardship" rule.

What is the intent of bankruptcy? First, we do not make citizens a slave to their debts for their lifetime. Second, bankruptcy is the consequence of a bad or unfulfilled risk taken by a creditor. Third, it reintegrates a citizen who is a drag on the economy. What good to society is a person with debt they cannot pay? Little good I submit other than to pay rent of high interest debt for the rest of their lives. If a lender knows when granting credit that their is a possibility they will not be paid if the borrower goes bankrupt, they may chose to be more careful in their lending and if they are not prudent, bankruptcy is an appropriate consequence. Finally, what our economy needs is consumers ... people who buy things. A debtor who can never repay his creditors will use all of his disposable income to pay on debt that will never be paid. This is a waste. Bankruptcy will eventually create a new consumer of goods and services.

What does a student have to prove in order to obtain hardship relief? First, they must prove they have acted in good faith with respect to the debt. Basically, paid what they could pay based on their income for the five years from their end of study date. Second, the debt must create financial hardship in the present and in the future. The student must prove these requirements on the balance of probability. The student loan creditor may provide contradictory information if they wish. The Court is disposed all things being equal to rule in favour of the bankrupt.

There is a simple way to find out if I am right. Make an application to the Court, serve the student loan creditors, appear, make your argument that you have acted in good faith and that the debt is oppressive. The court cost for the application in a summary bankruptcy or consumer proposal is $10.00 and in an ordinary bankruptcy or Division 1 proposal is $50.00. A small price to pay. If you require representation or preparation of documents, a lawyer can charge $1000.00 to $2000.00 for the service. I charge substantially less. Call your trustee inquire if he / she can assist in this process. If they do or will, their fee is often less than a lawyer. If they cannot assist you, they may be able to refer you to someone like me.

ScottGem

First, is there a question here, or did you just want to share this info? Second, I believe Chuck didn't catch that you were in Canada. What you are saying may be true in Canada, but its not true in the US.

twinkiedooter

In the United States student loans are not dischargeable in a Bankruptcy proceeding.

That's nice that Canada allows this but what was the purpose of your posting all of this information - to let the Canadians know they can have this debt discharged?

Iknowalotofstuff

Student loan debt is a massive problem. Amendments to US bankruptcy law seems to favour the creditor. Amendments to Canadian bankruptcy law seem to strike a balance between the need for a fresh start and rights of the government for repayment. The reason that I posted this information is that this blog is for both Canadians and Americans. It was my hope that Canadians would be informed of the relief that is available and the Americans would have something to strive for.

Food for thought.

Fr_Chuck

It appears there was never a question here more a discussion of the difference between Canada and US laws. I have moved it here to allow a more open discussion of the issues.

twinkiedooter

I can see your concern about Canadians, but if anything it would encourage people to get student loans, go to college, then file bankruptcy to have this debt erased. I am glad that there is no discharge of student loans here in America as it does not make sense to essentially get a "free" education at the expense of the loan whether it was from the government or private institution. There are plenty of scholorships available if one can qualify for them. No need to discharge this debt as it was a legitimate debt to help the person earn higher wages or have a profession. When a doctor finally finishes with medical school, etc he/she owes a small fortune in student loans. They will be out in the world making a very good living and quite capable financially of paying this back over a period of time. Why should they be able to completely discharge a huge debt like this?

Iknowalotofstuff

Let me see if I can clarify the Canadian Bankruptcy and Insolvency Act.. It is not a free ride. A student takes out a government student loan over four years totaling $60000.00 at 8%. The student graduates with a degree in computer science. The student loan becomes due 6 months after graduation and is amortized over 10 years. If the student cannot find suitable employment, he is eligible to apply for interest relief so that the loan will not continue to grow during these lean times. If the student still has not found suitable employment after five years of interest relief, he has a problem. The monthly interest on $60000.00 loan is $450.00. Let us assume that this debtor finds employment earning $500.00 per week. He would have to pay more than one weeks income to pay the debt over any reasonable period of time. Considering escalating shelter and food costs and the other necessities of life, it is unlikely that this student can make the payments. Lets say he can afford payments of $500.00 per month. It will take this student about 20 years to repay the debt and he will pay back about $120000.00. He will never buy a car or a house. Well maybe he can buy a house in the US under that screwed up mortgage system they have. For the next 20 years, this student will repay loans for which he has received no substantial economic benefit.
After this student has been out of school for 7 years, he can go bankrupt and the student loans will be treated just like any other debt. If he goes bankrupt before the seven years are up, he can go to court eventually when the 7 years are up and ask that the loans be discharged due to hardship.

You suggest that a doctor could rack up huge student loan debt and pay for 7 years to rid him or herself of that debt. If the doctor is working in the field, it is unlikely he would need to go bankrupt and if he did, It is unlikely that he would receive and automatic discharge. There would be conditions. The bankruptcy would be reported to all major credit bureaus.

What if the student graduates from medical school and he cannot find employment (however unlikely)? He would wait 7 years to declare bankruptcy. this should be sufficient time to establish if he were ever going to be a doctor. If he cannot find alternative employment to pay off the loan, he need to have it discharged so he can at least get on with his life.

The Bankruptcy and Insolvency Act is a social program dealing with financial problems the way Unemployment Insurance deals with loss of employment or Canada Pension Plan / Worker's Comp deals with disability or Old Security (Social Security) deals with income in old age.

Canada clearly has a different view on the student loan issue. just as we do on variable rate mortgages, national health care, social welfare, etc.

With all due respect to Twinkiedooter, she gives me the impression that bankruptcy is a bailout and student who took out these loans are not entitled to a bailout. I find this strange from a country who financial wizards have created a mortgage crisis unseen in recent history. A country where its political leaders are suggesting a bailout for these greedy companies. Why not give the honest but unfortunate student loan debtor the same type of bailout as your political leaders what to give to Wall Street.

twinkiedooter

Good. Then don't move to the US. Stay in Canada. Canada also has a lot of shoplifters. This goes with the Canadian mentality of "free" this and "free" that such as national health care, student loan giveaways, etc. Sorry, I do not agree with your mindset on this. You can rail on all you want about Wall Street and the financial thugs who really should be in jail instead of getting "bailed out" of their own making financial "crisis". The student loan debtor is definitely not in the same condition. The greedy bankers want to get more money as they have terminal greed and banking is nothing more than a money making business (literally) whereas a student loan is something "tangible" that the student incurred all by himself. As I said before, there are numerous scholorships available. They could have gone that route. I disagree with you on the "free student loan" as that is what it essentially is in the end via bankruptcy filing.