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.

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.

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 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.

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 there 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.

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.

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?

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.

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.

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. Why should they be able to completely discharge a huge debt like this?

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. 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.

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.

I will agree if they can not find employment perhaps the governmnent could provide a work program for them, but it is easy to claim you can't find work, I have a friend who has claimed that for years. But yes, too many people expect everythng handed to them, education, houses, jobs, cars and everything.

I don't see an issue with the debt never being discharged, they may freeze the interest and penalties, but if it takes 10 or 20 years, let them pay for their student loans.

Before the American rules were amended I knew of people who went the bankruptcy route even though they were employed. They just chose not to pay off their loan. I told them that it was better to defer than to go into default . They were willing to take the hit on their credit standing .

Most likely it is because of these abuses that the rules were amended .

With all do respect, your response is what I would expect from a typical conservative American. I don't intend to move to the US as they have a lot of murders down there and citizens carrying around loaded weapons. They might take exception to a liberal Canadian in favour of gun control.

My mindset is very simple. Those who can afford to pay their debts inculding student loans should. Those who cannot based on a well established criteria, should be discharged from the debt.

I am not sure I understand your logic. Are there any circumstances where a person can have their loans discharged. Death, serious illness, mental defect or poverty?

What if you went to school and had to borrow $30000.00 to do so. You obtained a degree and started looking for work. Most of the jobs in your field we going to China or Mexico. You were able to find a job at slightly more than minimum wage in your field. About $8.00 per hour working 40 hrs per week. Take home pay is $285.00 per week or $1225.00 per month. The payments on your student loans at 7.25% ammortized over 10 years are $352.20 per month unless you qualify for interest relief or deferrment. If you paid your loan payment each month, you would have $899.50 from shich to pay shelter, food, etc. That is hardly a sufficient amount. You pay to the best of your ability for 7 years. The debt is not diminishing. You have no choice but to go bankrupt.

You are in bankruptcy for 9 months. During this period, the student loan or other creditors can oppose your discharge is there are extenuating circumstances. If the creditor can convince the court that the loan should not be discharged as you have not acted in good faith and the loan is not oppressive, you would be discharged. In the evetnt you went bankrupt 4 years after being out of school due reasonable circumstances, you could go to court later to deal with the discharge on reasonable grounds.

Some fair evaluation process seems to be a better option than no discharge period under any circumstances.

Finally, credit is not granted in a vacuum. The reason that a lender provides student loans is because they are profitable. The reason that a sub prime lender (the ones who created the mortgage crisis) lend money to their customers to make a profit. There is very little difference between these types of lenders. The student loan lender can make student loans indiscrimitely regardless of circumstances because the loan is not subject to discharge. They are a equally reprehenisble as the Wall Street thugs. Isn't a student loan a loan of the lender's making?

While I agree that students should not get a free ride with respect to the cost of their education, I do not think a consumer receiving little or no benefit from that education should be burdened for the rest of his / her life. There has to be a compromise. I think the Canadian legislation reaches that goal.

All Americans do not own or carry guns. We have the privilege to do so if we want to. This is our right. Gun control does not keep guns out of the hands of criminals. Guns don't kill people, people kill people.

I don't buy into your scenerio of someone getting an education and then falling into a minimum wage job. What have you been drinking or what planet are you from (or thinking of going to)? If someone has enough I.Q. to actually go to college, I am sure they would be more gainfully employed and remunerated more than $8.00. You seem to forget - the person CHOSE to go to college.

And the part about the student loan lenders being thugs? I don't think so. You are way off base with that comment. The lender gave the money for the education of a person. The comment about "a consumer receiving little or no benefit from that education" makes no sense at all. What rationale are you using for this statement?

I do not think a consumer receiving little or no benefit from that education should be burdened for the rest of his / her life.

In other words if the student does not utilize the education to their best advantage they should renage on the deal.

In other words if the student does not utilize the education to their best advantage they should renage on the deal.

Tom - Do you mean if a student fails to acquire an overpaid position they should just "forget" to pay the loan for their higher education as they didn't "get their money's worth"?

I know a lot of not so smart people who went to college and they actually wasted their money (and time) as they were dumb to begin with and college did nothing for them intellectually as all they did was party for 3-4 years. I guess those poor schnooks got gyped and shouldn't have to pay. I think their parents pushed them to go to college thinking it would raise their I.Q. level.

I know a lot of people who used the college years for an extended 4 year party. Then reality hit them right between the eyes. According to Iknowalotofstuff they should be able to say" screw it " and not pay their debt. I'm surprised Canada would allow such nonsense.

My son told me that at one job he had recently (about 4 years ago) he overheard two girls talking about being approved to go to college in Canada. The one told the other girl that she wouldn't have to pay for this as someone would "show her the ropes" on how to not have to pay for it once she was in Canada.

Hey, everybody, just pile on into Canada for a free college education on them. Why bother incurring lasting debt in America when our nice neighbor to the North will happily give you a swell education for free. Partying costs are not available for financial discharge. Sorry.

Thanks for pointing out this nifty trick to us dumb Americans Iknowalotaboutverylittle.

Well to address the gun issue, there is no issues with licensed gun owners, they don't comment crimes when out with their weapons. The issue is the illegal guns, the drug and theft culture.

But don't know about the idea that you can't be employed to file bankrutpcy, in fact for a chapter 13 you HAVE to be employed, and most people filing chapter 7 are also employed. The only really change in the law is that there are debt to income guidelines that have to be meet.

There is an adage in Canada that goes somethinglike this: "Believe nothing that you hear and half of what you see". I might suggest that Twinkledooter's son remember this as his story about the girls seems a bit far fetched.

The equivalent to a Chapter 7 Us Bankruptcy in Canada is called bankruptcy. Chapter 13 is called a consumer proposal.

There are good and bad points on both sides here.

One point I would like to refute was Iknow's contention that US govt backing of student loans removes any incentive to make good loans. How would a lender judge how good a student loan is? For the most part, students have not built any credit history so there is really nothing to make a judgement on. The rationale is that someone with a college education stands a better chance of getting a good job to pay the loan back.

But I still wonder what was the purpose in posting this originally?

With all due respect. Loans are not made by people they are made by computers programmed with complex formulas and algorythms. For example, if one applies online for a credit card or overdraft protection, do you think an actual person sits down and evaluates the validity of the request?
NOT!! A computer evaluates simple questions and responds in a few seconds in most cases. If more information is needed, it is provided, inputted, and the computer re-evalutes the application.

Just imagine the number of employees a credit card company, bank, sub prime lender, etc. they would have to have if a "person" processed every application. There are millions of student loan applications processed every year. Do not think that a person reviews every single application to determine whether the loan is in the best interest of the lender and the student. The student's input data is compared to the lending criteria which includes in non dischargability and loans are granted. If you think that the lender would make all of the loans that are made if they were dischargeable in some insolvency process, think again.

Credit is like an assembly line making tin cans. The maker of the cans has to make a certain number as order by his customers. At the rate of speed he makes cans, there are 8 dented ones. The manufacturer now has three choices with respect to these cans. He can attempt to hammer out the dents in an attempt to have 100% good cans. Not cost effective. Second, he can slow down production in the nope that there will be fewer cans. Bad choice as her will not be able to meet the demand for cans. Finally, he can accept that at this rate of production necessary to meet the demand, there are 8% dented cans and live that as a cost of doing business.

In the credit process, deliquency is a cost of doing business. It is a necessary cost of doing business. If you were to ask any lender if his goal is 0% delinquency, the answer would be NO. A lender who has no delinquency has lending restrictions that are to restictive. Lenders will continue to loosen the lending requirements until they reach what they believe is an acceptable amount of delinquency. Think about it. The delinquent customers are part of a pool of customers of which they are 8% leaving 92% of those risky customers paying and this is where the money is. Lenders do not want customers whose goal is to repay as fast as they can. There goal is to keep people perpetually in debt paying "rent" on the money every month.

What does a lender do with the delinquency? Just as the can company will attempt to do. They will try and "salvage" what they can with the goal of minimizing their loss on these accounts. They will not lose more money. That is why after a short period of delinquency, accounts go to colletction agencies, lawyers, credit counselling, or bankruptcy trustee. These groups will see that the lender gets whatever salvage there is at their expense not the lenders. The lender is taking a rish to make money not to be benevolent. Lenders are in the profit business.

A loan to a student is a loan to a person who would not otherwise qualify for the credit. The student does not usually possess the current ability to repay the debt. The lender gambles that the student might as a result of the education obtain employment sufficient to repay the loan. The lender does not evaluate the nature of the education, what the job prospects in that field of study might be, what the future income earning potential is relative to the cost of the education. The lender just knows that the student is enrolled and what the cost of the education is.

The impression I get from my American friends is that there is something noble about a lender who lends money to fund education. Student loan lenders are capitalists of the highest order. They see a market place where loans are the most common method of obtaining funding for education. They see that the cost of this education is increasing exponetially. They have lobbied congress to make these loans undischargable in bankruptcy. They have a captive market and they are making money. They do not have to negotiate or make concessions in time of trouble. Finacially troubled students will see the loan grow and grow and grow.

The US has some hardship provisions in its Bankrutpcy statutes as does Canada. Ours is a more objective process based on a criteria. In the US, it seems the process is more subjective. In Canada, two students regardless of status or location will be evaluated the same while in the US two people of similar economic status but in different locations could see courts or lenders view their applications differently.

My original post was to get people thinking and talking about student loans and their future impact on the borrower. We are not talking about the 90% of borrowers who repay their student loans but the 10% who cannot.

I have no sympathy for student loan borrowers who will not pay when they could. My concern is for the borrower who wants to pay but cannot as his /her income is insufficient to pay for the necessities of life.

A final comment. Assume I had a US student loan of $10000.00 and a credit card with a balance of $5000.00. I get a consolidation loan for $15000.00. I cannot repay this loan and make an assignment into bankruptcy. The loan is discharged under Chapter 7 or negoatiable under Chapter 13 as I have been lead to believe. It does not seem fair to the subsequent lender.

Question: Are student loan payments tax deductibe in the US. They are in Canada. Is their a loan forgiveness program for students who complete their education in good standing? There is in Canada. Is their an interest relief program designed to assist new graduates so that their loans do not escalate when the first enter the workforce. There is in Canada? What other debts are not discharged in the US? In Canada, fines from a court, civil judgments arising from sexual assault or great bodily harm, acts of false pretense / fraudulent misrepresentation, fraud, breach of fiduciary duty, shild support /spousal support . Maintenance plus government legislated student loans are not discharged. How long is a person in bankruptcy in the US? What does bankruptcy cost in the US? How long is Chapter 7 or Chapter 13 reported in a credit bureau report.

A loan to a student is a loan to a person who would not otherwise qualify for the credit. The student does not usually possess the current ability to repay the debt. The lender gambles that the student might as a result of the education obtain employment sufficient to repay the loan. The lender does not evaluate the nature of the education, what the job prospects in that field of study might be, what the future income earning potential is relative to the cost of the education. The lender just knows that the student is enrolled and what the cost of the education is.

The impression I get from my American friends is that there is something noble about a lender who lends money to fund education.


I guarantee that if it became a common practice for students to default on these loans ,the loan availability would dry up for other students who have legitimate needs for them. What you are advocating is screwing up a good process to fund advanced education.

Like it or not ;we as a society fulfill our responsibilities to a child's education when they leave secondary school.

However still many of the loans are subsidized by the taxpayers and by your own admission the lenders are waving many of the rules they would apply to someone asking for a similar loan for other purposes. Yeah a predatory bunch of folks those lenders be!

First, your synopsis of the lending process is correct and doesn't contradict anything I said. I really don't uinderstand why you went through it. In fact, you agreed with what I said when you posted; "A loan to a student is a loan to a person who would not otherwise qualify for the credit."

I'm not sure where you are getting this; "The impression I get from my American friends is that there is something noble about a lender who lends money to fund education." What's considered "noble" is the fact that the government backs and guarantees these loans to make higher education more available. Student loan lenders are in a win-win situation. They earn interest as well as gain a market (students are more apt to bank where they have their student loans). But they are indemnified against loss.

And yes, Student Loan interest is tax deductible.

As for your loan consolidation scenario, given the favorable interest rates and payback options for student loans, someone would be foolish to consolidate it with other debt. And if they were doing it so they could disharge the debt in bankruptcy, they are probably in such financial trouble that they couldn't get it done.

Issue 1: In Canada, defaulted student loans oftern end up in private collection agencies where payment in full is often demanded as an alternative to legal action. These collection agencies are unmerciful in there aggressive collection. SL debtors often resort to consolidation loans to get the agency off their back or to reduce the combined contractual payments. The average interest rate on a student loan in Canada is between 7 and 8%.

Issue 2:
While Canada and the US charge their students a tuition and other fees to attend institutions of higher learning, other nations such as Australia, France, Belgium, etc. provide this type of education free of charge.

Both the country and the individual obtain a benefit from the higher education. If the populace is better educated, the work force is better educated, the work force is more competetive. The more educated worker will usually pay more taxes. This additional tax could pay for the education.

My real concern about student loans started in 1996-97 when Ontario elected Mike Harris premier. He reduced the amount that a single parent with dependent children received on social assistance by 20%. At the same time, the social workers at welfare began to convince these mother to go back to school. The benefit for the province was that the amount of the student loans included the amount of welfare that they would other wise ge entitled to. For example, a mother with one child receives $1200.00 per month on assistance. So she goes to school, is disqualified from assistance but lives on a $20000.00 student loan. School is for 3 years.
She now owes $60000.00. She is granted about $20000.00 of loan forgiveness because she graduated. This person has a degree as a personal support worker. Her income assuming she can find a job is about $1600.00 net per month. In order to work, she requires day care which will cost here about $400.00 per month. Shelter and utilities assuming she qualifies for geared to income housing is about $700.00 per month. Food, Insurance and transportation are about $500.00 leaving no money to repay the student loan. She qualifies for interest relief which is no payments for up to five years with the government paying the bank the interest on the debt which stays the same for five years. The only hope she has is that the father of the child pays child support. If he works in a similar wage job, his support payments would be about $250.00 per month which might cover Christmas, birthdays, clothing, school expenses and a little bit of entertainment. Still no money to pay the student loans. She would probably qualify for Child Tax Beneft and the Universal Child Tax benefit of about $350.00 per month to cover the child's needs. This is the best case sceario. The worst case scenario is she is back on assistance with no money to pay the student loan. The support payments are part of her $1400,00 in social assitance / welfare as is a portion of her child tax benefit. Her child is 3 years old so she will qualify for this level of assistance for the next 15 years provide she cannot find a better job.
The idea of loaning mothers with dependent children their welfare entitlements and making that debt undischargable for 10 years is reprehensible but cosistent with the conservative mentality of the Harris government. I tend to view the discharge process through that lens.

Pardon me if I begin to ramble