Can I Declare Bankruptcy With Student Loans in Canada?

If a significant debt is burdening you, bankruptcy is likely to cross your mind. But there is just one problem: you have student loans. Or is it a problem at all? Is filing for bankruptcy with student loans possible, or will you need to find another option? 

Whether your debt is a result of student loans or a combination of student loans and another form of unsecured consumer debt, it can take a toll on your mental AND financial health. First, it is essential to know there ARE ways to get out of this debt and Licensed Insolvency Trustees in Alberta who are here to help. 

Now, let’s get back to that big question.

Student loans and bankruptcy

Can I Declare Bankruptcy With Student Loans?

Technically, the answer is yes; you can declare bankruptcy with student loans. However, there are specific waiting periods under federal law you will have to satisfy first.

If you file for personal bankruptcy before these waiting periods are up, your student debt could survive long after your bankruptcy. 

Insolvency Waiting Periods

These timing requirements, known as insolvency waiting periods, could be either seven or five years long.

The 7-Year Waiting Period for Filing for Bankruptcy with Student Loans 

Seven years is the primary period to consider before filing for bankruptcy with student debt. That’s seven years or more from the date of the end of your education. 

If you attempt to make insolvency claims before this period is up, it can result in punishment according to Canada’s insolvency laws. If this date is off, it can derail the entire bankruptcy process, even by a few days.

To ensure this waiting period’s satisfaction, you want to consider the last day of your exams for your final semester as your education’s end date rather than the last day you attended class. 

Another critically important way to make sure there is no room for error with your waiting periods when making a consumer proposal or filing for bankruptcy with student debt is working with a Licensed Insolvency Trustee. Their experience in handling these cases is an invaluable resource while you navigate a complicated process. Click here to read about why you can trust Licensed Insolvency Trustees.

Once you are sure the seven-year waiting period has been satisfied (preferably with an added 30+ days or so), you are entitled to an automatic discharge of your outstanding student loan. The same rule applies to consumer proposals. 

The 5-Year Waiting Period for Filing for Bankruptcy with Student Loans 

As for the five-year waiting period, there are particular circumstances in which this may apply. If it has been more than five but less than seven years since completing your education, you may grant you a “court-ordered discharge” under a hardship provision in Canada’s Bankruptcy and Insolvency Act (BIA).

Before discharging a person who satisfies the five-year waiting period, the court considers three key factors:

  1. How the debtor used the student loan money 
  2. The debtor’s efforts to repay student loans
  3. The debtor’s efforts to complete their educational program

Depending on these factors, a debtor may receive an earlier discharge under a hardship provision.

Speak with a Licensed Insolvency Trustee

If you face the possibility of filing for bankruptcy with student debt, a Licensed Insolvency Trustee can ensure you satisfy the insolvency waiting periods. The compassionate Licensed Bankruptcy Trustee at Fox-Miles will walk you through every step of the process. Get in touch with us today so schedule your free consultation.

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