I Can’t Pay My Student Debt… Now What?

Elizabeth Cockle

The cost of obtaining post-secondary education has steadily climbed over the past two decades. A daunting reality is that many graduates struggle to repay their loans for many years after finishing their studies. If you find yourself in this situation, declaring bankruptcy may feel like the only option. But is it the right option for you?

Explains Toronto bankruptcy lawyer Andrew Rogerson, student loans can, eventually, be expunged. The key consideration is the number of years that have passed since you finished your studies. Under Canada’s student loan and bankruptcy rules, in effect since July 2008, seven years is the critical number.

If you finished your studies seven or more years ago

Student loan debt is eligible for discharge in bankruptcy if seven years have passed since you finished your studies. This means that filing for bankruptcy or submitting a consumer proposal will normally result in a bankruptcy court automatically discharging your student loan debt. A consumer proposal is a legal process that allows you to settle your debts with creditors without declaring bankruptcy. For example, if you got a student loan in September 2004 and graduated in May 2008, you ceased to be a student at the end of May 2008. Thus you would be eligible to apply for discharge from June 2015 onwards.

This rule applies regardless of whether you were a full- or part-time student, or whether you graduated. If you returned to studying at any time during this seven-year period, you cannot file a bankruptcy or submit a consumer proposal until seven years have passed from the date of termination of your studies.

If you finished your studies less than seven years ago

If less than seven years have passed since you ceased to be a student, student loan debt will not be discharged if you file for bankruptcy or submit a consumer proposal. It will remain, even if other debts can be successfully discharged. However, you may apply to the court for discharge after five years on grounds of hardship. In order for the court to be satisfied that your circumstances meet criteria for hardship, you must be able to prove that
  • you have acted in good faith by seeking employment and making regular repayments whenever possible; and
  • you expect to continue to experience financial difficulties.

What Next?

If you feel that you may qualify to have your student debt expunged in this way,the next step is to speak to a qualified bankruptcy lawyer. A lawyer can make recommendations based on your individual situation, such as entering into bankruptcy, a consumer proposal, or applying to court under the hardship rule.

There are many advantages to consulting a lawyer well versed in this area. These include the fact that your discussions are covered by legal professional privilege, so you can speak openly without fear of legal liability. The lawyer is wholly independent, and will provide the best advice in the wider context of what is right for your particular circumstances.

Andrew Rogerson is a bankruptcy and asset protection lawyer, practicing in Bay Street, Toronto. An experienced trial lawyer, he was called to the Bar 1981 and has extensive experience in offshore tax havens. He is a Fellow of the Society of Trust and Estate Practitioners (STEP) and has published articles in the field of bankruptcy, asset protection, and the use of offshore structures. Andrew may be contacted by email at Send Mail or by telephone at 416-504-2259. His website is www.rogersonlaw.com

Elizabeth Cockle writes and edits for professional services firms and B2B companies. She cuts through the clutter of legalese, financialese, and corporatese to create marketing copy that speaks to clients in language they understand. She can be reached at 416-466-8171 or www.ecwriting.com.
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