The Supreme Court of Canada (SCC) has issued a landmark ruling that will impact how provincial courts interpret the country’s bankruptcy laws regarding student loan debt.
The decision stems from the case of Izabela Piekut. The former student argued that she should be able to include her student loan debt in her consumer proposal as seven years had passed since she graduated from her government-funded program in 2003—even though she returned to school in 2009 without taking on additional student loans.
The SCC ruled that the seven-year clock starts ticking after your final day of full-time or part-time enrollment. This rule applies whether you use government-issued loans to fund your studies or not. That means if you return to school before the seven year period has elapsed—even without borrowing more—your eligibility to be released from student loan debt under bankruptcy laws resets.
The SCC’s ruling on the seven-year rule for student loans is known as the “single-date” approach. And it’s now the national standard.
If you’re a former student paying government student loans, it’s worth understanding the SCC’s judgment. Depending on your circumstances, it may prevent you from including your student loan debt in bankruptcy or a consumer proposal.
What is the seven-year rule under Canada’s bankruptcy law?
The Supreme Court clarified its stance on student loans under bankruptcy law in the case Piekut v. Canada (National Revenue), 2025 SCC 13 on April 17, 2025. Essentially, it said that an individual can include student loans in bankruptcy or a consumer proposal only if it’s been at least seven years since they finished their post-secondary education.
To determine if your student loan debt satisfies the seven-year rule, you must know you’re “end-of-study-date,” which is the latter of:
- The last day of the month when you stopped attending school, or
- The last day of the month when you completed your last exams for your final semester
The rule seems straightforward. But, in reality, it’s still vague and can be interpreted in different ways. This haziness has led individuals (and even provincial courts) to misapply it, at least from the SCC’s perspective. That’s exactly what occurred in Izabel Piekut’s case.
Why did the Supreme Court of Canada rule against the former student?
To understand the logic behind the SCC’s decision, we must examine Piekut’s history as a student and, most importantly, her graduation dates.
Piekut used government student loans to finance the cost of three university programs from 1987 to 2003. She later attended a post-secondary institute again in 2006, graduating with a Master’s degree in 2009. This time around, however, she didn’t rely on government student loans to cover the cost of her studies.
In 2013, Peikut enrolled in a consumer proposal, including her student loan debt in her filing. Her argument for including the student loans was that more than seven years had passed since she was a student as she completed her studies in 2003. However, the BC Court disagreed, ruling that the student loans were not eligible for inclusion. This decision prompted her to file an appeal with the Supreme Court.
The Supreme Court concurred with the BC judge, deciding that Piekut could not include the student loan debt in her proposal. It ruled that there can only be one date on which a person completes their post-secondary studies, not multiple dates, as in Piekut’s case. Where there are multiple graduation dates, the seven-year rule applies to the most recent one if there was no consecutive period of seven years where you ceased to be a student.
Based on this reasoning, it’s easy to see why Piekut lost her appeal with the SCC. She ceased being a student in 2009, four years before her proposal filing date. Since she didn’t meet the seven-year rule, the student loans don’t qualify for a consumer proposal (or bankruptcy).
The fact that she initially left school in 2003 (more than seven years before her proposal filing date) doesn’t matter. Returning to further her studies, she restarted the seven-year waiting period, which officially began in 2009. In addition, her Master’s degree being self-funded also doesn’t invalidate the seven-year rule. It’s the graduation date that matters, not the source of financing.
Why the Supreme Court of Canada’s ruling is contentious
The SCC’s ruling is pivotal, as provincial courts have interpreted bankruptcy laws differently in the past. This has led to confusion and inconsistency. For example, Nova Scotia, New Brunswick, and Saskatchewan courts maintain that the law allows for multiple graduation dates. On the flip side, judges in BC and Quebec side with the SCC’s single-date interpretation.
The “multi-date” approach has historically favoured bankrupt individuals as it’s less stringent. However, with the recent SCC judgement, the single-date interpretation has won. Ensuring fairness was cited as one of the reasons behind the decision. Justice Mahmud Jamal, who spoke on the SCC’s behalf, said that:
“The multiple-date approach results in absurdity: in some instances, it would allow borrowers to obtain a discharge of their student loans even before the government has had any opportunity to recover the student loan debt because any break in studies, however short, would trigger the start of the seven-year period under s. 178(1)(g)(ii).”
What does the ruling mean for people considering bankruptcy or a consumer proposal?
As Licensed Insolvency Trustees, we understand this news can feel discouraging, especially if you’re already overwhelmed by debt. However, the SCC’s ruling doesn’t eliminate your options—it just clarifies how student loan debt fits into the bigger picture.
Let’s break down the facts:
- Student loan debt is only one type of debt you may grapple with. If you have credit cards, lines of credit, payday loans, and other unsecured debts, you can still reduce these through a consumer proposal. Or, you can eliminate them in bankruptcy. The SCC’s ruling doesn’t apply to them.
- If you’ve passed the 7-year mark since your last time in school, your student loan may be discharged through bankruptcy or a consumer proposal.
- If your student loans are under seven years old, they don’t qualify for bankruptcy or a proposal. However, eliminating or reducing other unsecured debts through these debt-relief programs will free up your income. As a result, managing student loan payments will become more affordable.
- The seven-year rule applies only to government-issued student loans. You can include private student loan debt (such as a line of credit from a bank) in bankruptcy or a consumer proposal, regardless of when you graduated.
- In exceptional cases, you may be eligible to include your government-issued student loans in bankruptcy or a consumer proposal earlier under the hardship provision.
We encourage you to learn more about the treatment of student loans in bankruptcy if you’re considering filing. Consumer proposals can also help you deal with student loan debt, especially if you wish to keep your assets.
Looking for a solution for you student loans and other debts? We’re here to help
It’s important to remember that the Supreme Court’s decision doesn’t change your right to seek debt relief in Canada. It only outlines how the timeline for government student loans is calculated under the seven-year rule.
If you’re feeling trapped by debt— whether from school, credit cards, or payday loans—there’s always a way forward with help from a Licensed Insolvency Trustee (LIT). At David Sklar & Associates, our LITs will walk you through your options with compassion, experience, and a judgment-free approach. We’ll help you:
- Understand if the 7-year rule applies to you
- Create a personalized plan to deal with all your debts
- Decide if a consumer proposal or bankruptcy is right for your situation
Don’t let legal decisions like the recent SCC ruling intimidate and stop you from tackling your debts. Contact us today for a free, no consultation obligation—you deserve a fresh start!
