Student loans are common among Canadians who received post-secondary education, but these loans can quickly add up after graduation. In some cases, especially when already facing overwhelming debts, you may need to consider other options to help you manage your debts.
There are federally licensed debt solutions like Bankruptcy and Consumer Proposals that can help with student loans. The licensed insolvency trustees at David Sklar & Associates can help explore all of your options and get you back on track with your finances.
Bankruptcy & Student Loans in Canada
Can You Declare Bankruptcy On Student Loans in Canada?
As of July 2008, under the Bankruptcy and Insolvency Act, there are two conditions under which Student Loans may be discharged by bankruptcy in Ontario: The Seven-Year Rule and the Hardship Provision. If you are considering bankruptcy and have school debts and think the above two conditions might apply to you, you will need to discuss with your trustee.
Seven Year Rule
If an individual files a bankruptcy seven or more years after they finish being a full-time or part-time student, their loans are eligible for discharge. These loans include your Federal or Provincial student debts.
If you decide to declare bankruptcy seven/or more years after being a student (part/full), these loans will be eligible for discharge. However, the court can reduce this period to five years if repaying the loan will cause undue hardship.
If you have been out of school for less than seven years, a consumer proposal or bankruptcy will allow you to halt your payments. You will have to resume your payments once you are absolved of your other debts.
If an individual is currently in a Bankruptcy or was bankrupt, they might get their student loans discharged if:
- It is five or more years after they finished being a full-time or part-time student
- They prove to the Court that they qualify for a Hardship Provision
It should be pointed out that it can be very difficult to prove Hardship to the Court. For proof, the Court will closely examine factors like:
- How did the debtor spend their student loan?
- Did the debtor work hard to complete their education?
- Did the debtor make a serious effort to repay their loan?
- Did the debtor try to get loan repayment relief through the federal government, provincial government, or the financial institutions that issued the loan?
- Are the financial problems faced by the debtor likely to be long-term?
Student Loan Bankruptcy Discharge
The court will only discharge you from your student loan in a bankruptcy if they believe that you have earnestly attempted to repay your student loans. They must be confident that you have experienced, and will likely continue to experience, financial struggles that make you unable to pay back these debts.
Problems Repaying Your Student Loans?
If you are having problems repaying your student loans in Canada, you should contact your Federal/Provincial Student loan centers to find out the available options. The Canadian government has repayment assistance options to help your current situation, including CanLearn’s Repayment Assistance program. These options can include OSAP debt reduction, interest relief and payment deferral.
The most commonly used programs are:
Managing your student loan debt is essential. You can help increase your credit rating by paying off your loan and paying off your loan quickly will help reduce the amount you are paying in interest.
The OSAP Reduction Program
The Repayment Assistance Plan is the OSAP debt reduction program that the Canadian Government offers to students struggling to pay back their loans. This plan applies to the following loans:
- Canada-Ontario Integrated Student Loans
- Canada Student Loans issued before August 1, 2000
- Ontario Student Loans issued before August 1, 2001
- Part-Time Canada Student Loans
Eligible borrowers for the OSAP debt reduction plan will either be exempt from their monthly loan payments for the eligibility period or allowed to make affordable payments.
When You Have A Private Student Loan
In some cases, an individual may take out a private loan in Canada to pay for their post-secondary instead of a publicly accessible loan like OSAP or CanLearn. An individual with a private school loan may be eligible for discharge of the loan under the BIA, regardless of when they graduated.
If Your Student Debt Is Less Than 7 Years Old
If you have had student debt for under seven years, you may not be eligible for a student loan bankruptcy discharge — but you still have the option to negotiate new payment arrangements. You can do this by contacting the loans office or through the National Student Loan Service Centre’s Repayment Assistance Plan.
Your options include:
A Temporary Payment Reduction
Instead of receiving a student loan bankruptcy discharge, you can alleviate the pressure of paying off your loan by asking for a temporary reduction in payment. In some cases, you may only pay your interest payments.
A Repayment Extension
You can ask for a payment extension to give you more time to pay off your loans in full. This extension will allow you to make smaller contributions. The maximum payment period permitted is 14.5 years.
A Hardship Reduction
When you get a hardship reduction from the government, you will get your interest costs reduced for the first ten years. This may include an overall reduction of what you owe.
Hardship reductions are available for individuals who can prove that they have experienced financial hardship and meet a specific income requirement. A hardship reduction is the only option that won’t increase your interest costs and extend how long you are in debt.
What Happens If I Have More Debt Than Just My Student Loans?
If you are facing debt outside of your student loans, you can consider a bankruptcy or consumer proposal. These debt relief programs won’t absolve you of your loans but will allow you to pause your payments until you have completed your program.
The idea is that once your consumer proposal or bankruptcy is completed, you will have the tools and be in a better standing to repay your student loans.
When you book a consultation with David Sklar & Associates, you can have peace of mind knowing that your trustee will work with you and consider your student loans when helping you weigh your debt relief options.
Can I Get A Student Loan After Bankruptcy?
If you have filed for bankruptcy, you may still be able to apply for Ontario Student Assistance (an OSAP loan). That said, you will need to provide additional information with your application. You have higher chances of getting approved for an OSAP loan your first time applying.
Student Loan Debt Relief with David Sklar & Associates
If you find yourself overwhelmed with debts like student loan debts, the offices of David Sklar and Associates can help review your current situation and explain your options. Call today for a free consultation.