Student Loans and the Bankruptcy and Insolvency Act

Going to post-secondary school can be an expensive investment and sometime does not result in the income producing job that one may have hoped for. The Federal and Provincial governments have student loan programs to assist students while attending school. The loans do not require payments until sometime after schooling ends and then payments are required or interest relief is requested. For some individuals, the amount of student loans and other debts become unmanageable and alternative options, like a consumer proposal or personal bankruptcy, are filed.

There are special rules for student loans in bankruptcy. Section 178(1)(g) of The Bankruptcy and Insolvency Act (BIA) sets out that student loans through the government cannot be discharged unless 10 years have passed from the time they ceased to be a student and the time they file personal bankruptcy.

What that means is that the a student loans less than 10 years old will survive and be payable after the consumer proposal or personal bankruptcy is completed. The student loans cannot force collections while someone is in a consumer proposalor personal bankruptcy though.

In 2005, there were a couple of interesting cases around student loans:
1. In the Chenier v. Canada (Attorney General) it was found that the BIA provisions for student loans are not in violation of the Charter of Rights; and
2. In the Pyke case it was held that a student ceases to be a full-time student on the last day of the month of Canada Student Loan Act eligibility, not the graduation date.

For individuals that have filed bankruptcy prior to the student loans being 10 years old and 10 years now have passed, there is a provision to request the courts to discharge the loans - this falls under section 178(1.1) of the BIA. The case law around this varies, so we suggest you call us to discuss or seek legal counsel.

As Hoyes, Michalos & Associates Inc. we operate in various cities, and are continuously working with individuals to find a plan that works for them. To discuss your situation and options in detail, please contact us or call us at 310-PLAN.

Posted by Scott Schaefer, CA @ 3:14 PM

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