NOTE: The new student loan rules came into force on July 7, 2008. As of today, other provisions of the new rules have NOT yet come into force.
Under the old law, in a bankruptcy student loan debt was only automatically discharged if the student has been out of school for over ten years.
Under the new rules , subparagraph 178(1)(g)(ii) of the Bankruptcy & Insolvency Act is amended to reduce the period from ten years to seven years. In other words, if you have ceased to be a full time or part time student for seven years when you go bankrupt, your student loans will be automatically discharged.
In addition , the bankrupt may apply to the court if their student loans are more than five years old, and the court may discharge the debt if the bankrupt has acted in good faith, and the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.
In our experience it is difficult to apply to a court for anything without a lawyer, so most former students will need to wait seven years before going bankrupt to have their student loans discharged.
We recommend visiting the Canadian Student Loan Bankruptcy Blog for more information on bankruptcy reform, bankruptcy and student loans, and the student loan discharge period. For details you can also call our Ontario bankruptcy offices, or contact a bankruptcy trustee by email.
Our bankruptcy offices in Ontario
Contact a bankruptcy trustee
About bankruptcy trustees at Hoyes Michalos