How will Bill C-12 affect those with student loans who want to file a consumer proposal? Even though former students have been unable to automatically discharge student loans less than 10 years old if they file for Ontario bankruptcy (seven years under the newly proposed Bill C-12), students could file a consumer proposal in the past. Canadian bankruptcy reform in Bill C-12 may change that.
The process was simple. If a former student had $25,000 in debts (say $15,000 in credit card debts and a $10,000 Canada student loan that was six years old), they could file a consumer proposal. If more than half of the dollar value of the creditors accepted the proposal, the proposal was accepted.
Thus by filing a consumer proposal calling for payments of say $200 per month for five years, if the credit card companies accepted the proposal, the student loans also had to abide by the terms of the proposal, whether they voted for it or not (since more than half of the debts voted in favour of the proposal).
Since at the conclusion of the term of the five year proposal the student loans were now eleven years old, the debtor was, in most cases, effectively able to discharge their student loans.
Please note that this is an example for illustrative purposes only; the law is more complex than stated here, so you should contact a licensed bankruptcy trustee to review your specific situation before deciding if this approach will work for you.
However, Bill C-12, an Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act, and chapter 47 of the Statutes of Canada as passed by the House of Commons on October 29, 2007, contains an interesting amendment.
The proposed new section 68.28 (2.1) of the Bankruptcy & Insolvency Act states that "A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability has assented to the consumer proposal."
The section that deals with the discharge of student loans is contained in section 178(1) of the Act. Specifically, section 178 (1)(g) of the Act states that the following debts are not automatically discharged in a bankruptcy:
Enough of the legal double-speak. What does this mean? Simple. Under the amendments proposed in Bill C-12, a former student's student loans, if less than seven years old, will only be discharged in a consumer proposal if the student lender specifically votes in favour of the proposal.
Using our example above, if $15,000 in credit card debts voted in favour of the proposal, but $10,000 in less than seven year old student loans voted against, the proposal would be accepted, but the student loans would not be discharged. At the end of the proposal, the debtor may still be liable for the student loan debts.
Again, we must comment that the legislation has not yet been passed into law, and we are merely speculating as to the meaning of the proposed legislation. Our comments may be incorrect, so you call one of our Ontario bankruptcy offices - either to just ask a question, or to arrange for a free initial consultation when you will be advised on your specific fact situation.
Stay tuned to this space for further updates on Bill C-12, student loans and filing a consumer proposal.