It is not uncommon for someone who has filed a consumer proposal or bankruptcy to wish to return to school to complete their studies or retrain. If you’ve filed an insolvency proceeding, whether a bankruptcy or proposal, getting new funding through the Ontario Student Assistance Program (OSAP) is dealt with on a case by case basis. Here is what you need to know.
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Please note, this article is based on the 2022-2023 OSAP application process. These rules change so please review your current application form for updates.
There is nothing stopping you from applying for Ontario Student Assistance (OSAP) funding after having filed insolvency however you will be required to provide additional information as part of the application review process. Your application will be considered incomplete if you do not provide this information. Only if all conditions are met will your application be considered. The student loan program will consider your complete application and situation when making their decision.
While each situation is different, based on our experience:
- The chances of receiving a student loan are greater if this is your first application
- If an existing student loan is in default or not being paid then that will materially affect being approved for new student loans
You must disclose if you’ve filed insolvency
Section 610 of the most recent application specifically asks, “Have you ever filed for bankruptcy or initiated a related event?”.
A related event would include any proceeding filed under the Bankruptcy and Insolvency Act, including a consumer proposal or personal bankruptcy. That means that any conditions or requirement apply equally to a consumer proposal or bankruptcy.
If you answer yes to a bankruptcy, you must also disclose if you are an undischarged bankrupt and the date you filed. You are an undischarged bankrupt until you complete all your bankruptcy duties and obtain your certificate of discharge.
If you answer yes to a consumer proposal, you disclose if the consumer proposal is still active and the date you filed. The consumer proposal is still active until you complete the proposal and obtain your certificate of full performance.
Canada Student Financial Assistance Act
According to the Regulations of the Canada Student Financial Assistance Act, if a borrower has a government-guaranteed student loan and goes bankrupt or files a proposal, they are not eligible to receive a new student loan until three years after their discharge from bankruptcy.
The specific rule is in the Regulations, paragraph 16, subsection (2), part (d):
16 (2) (d) if the borrower is released from the borrower’s student loans and guaranteed student loans by reason that an absolute order of discharge is granted under the Bankruptcy and Insolvency Act, three years have passed since the date of the order.
There are three questions on the OSAP application form related to bankruptcy and a consumer proposal, the answers to which will impact a person’s eligibility for an OSAP loan in the future. The questions are on page 17 of the application. The Regulations to the Canada Student Financial Assistance Act, specifically paragraph 16, provide the legal basis for these questions. Page 55 of the OSAP application provides a (somewhat) easier to understand interpretation of the questions.
Your discharge status matters
There are different documentation and conditions that must be met depending on whether you have completed your bankruptcy or proposal or whether you are an undischarged bankruptcy (or have not completed your proposal).
If you have not yet been discharged from bankruptcy (or completed your proposal), you must also provide additional documentation in the form of a letter from your trustee:
- Confirming the date of filing
- Indicating that the government was not as a creditor for government-guaranteed student debt and that any funds provided by OSAP will not be seized to repay creditors listed in your bankruptcy or proposal.
If you have completed your proceedings and received your discharge or certificate of completion you must provide:
- a copy of your certificate of discharge or certificate of full performance (consumer proposal).
- If your student debt was discharged as part of your bankruptcy or proposal under Section 178 (1) of the Bankruptcy and Insolvency Act, you must provide proof of when you were discharged and that three years have elapsed since the date of your discharge.
What this means is that if you are currently in a proposal or bankruptcy, you must show that you don’t have current student debt included in your bankruptcy or proposal and that your trustee won’t count new loans as income for the benefit of your creditors.
If you have already finished your bankruptcy or proposal and student debt was forgiven, they want to know that that you finished your proceeding more than 3 years ago.
The application also points out that if you have previously negotiated student loans since May 11, 2014, you must provide proof that you no longer have outstanding balances on those negotiated loans.
In summary, you can complete an application for OSAP if you have been bankrupt or in a proposal. It is important that you be honest and provide all information required. If you are considering returning to school and have not yet filed, talk to one of our trustees about your situation. If you are struggling with other debts, dealing with that debt through a consumer proposal can help improve your personal budget sufficiently to make going back to school much easier.