Student Loans and Consumer Proposals
For many post-secondary students, student loans are a fact of life. While there is a tendency to lump all loans taken out by students during their studies together, there are significant differences.
Government student loans are loans from the federal and/or provincial governments which have special protection under Canada’s consumer proposal/bankruptcy laws.
In addition to government student loans, many students take out personal loans, use credit cards, and get lines-of-credit – to finance their way through a post-secondary education.
If you are in serious financial distress and are considering a consumer proposal, it is important to understand the difference between government student loans and loans/credit taken out through other sources.
If you have government student loans, under the Bankruptcy and Insolvency Act, you cannot normally be discharged (released) from this debt until seven years after you have stopped being a student.
That means that if you enter into a consumer proposal or declare bankruptcy before the seven years is up, you will still be responsible for repaying the government student loans at the end of the proposal or bankruptcy. For more details on how non-dischargeable student loans are handled in a consumer proposal – visit: Consumer Proposals and Student Loans.
If you have unsecured credit card debt – and you find yourself insolvent and in honest need of the relief provided by a consumer proposal – you may be able to be (discharged) released from that debt.
However, if you took out an education loan or got an education line-of-credit with a bank, it has been our experience, that banks often successfully petition the bankruptcy court to have these types of education-related debts excluded from discharge in both bankruptcies and proposals.
Why Get a Consumer Proposal Then?
Obviously, the benefits vary from person to person – and only after you have discussed your situation it in detail, with a Trustee, will you know if it is in your best interest to file a proposal.
However, in some cases, where former-students have been unsuccessful in getting a strong financial footing, proposals are able to offer a chance to get enough debt relief to enable them to re-group and build a better financial base.
