What Happens to my Student Loans if I File for Bankruptcy?
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As a licensed trustee in bankruptcy a common question that I get asked is something along the lines of “What happens to student loans in a bankruptcy?”
In order to answer this question it is important to know if we are talking about loans provided through the Canada Student Loans Program or other loans for students such as student lines of credit through a bank.
A student line of credit through a bank or other financial institution is a debt that can be included in a bankruptcy, however; it is important to know if there is a co-signor on this debt. Sometimes banks require a co-signor when giving out these loans and that co-signor would still be responsible for the debt after you file for bankruptcy. This is something that can be discussed with a trustee to find out exactly what the situation is.
Student loans through the Canada Student Loans Program can be included in a bankruptcy if they are more than seven (7) years old. That is – if your end-of-study date is more than seven years ago. I recommend everyone with a student loan that is considering bankruptcy should call Canada Student Loans and ask what they have on file for the end of study date.
The end of study date can be confusing, especially if there has been a return to studies since the initial loans were obtained. Recent court decisions have held that the ‘clock’ does not reset on a student loan if the borrower returns to school later on, however; this is a bit of a confusing issue and is definitely something you should discuss with a trustee in order to find out where you stand.
If your Canada Student Loan is less than seven years old but more than five (5) years old and you file for bankruptcy you might be able to make an application for what is called ‘hardship’. Again, if you think this applies to you it is best to contact your trustee to find out more.
Sean R. Stack, MBA, CIRP
Trustee in Bankruptcy
Did You Know?
Many people who file for bankruptcy get to stay in their home.
In Newfoundland and Labrador, you can keep your RRSPs – even if you file for bankruptcy.
Many people who file for bankruptcy are able to keep their vehicle.
Most bankruptcies are NOT published in the newspaper.
Student loans can be included in a bankruptcy if they are more than seven (7) years old.
A consumer proposal is an alternative to bankruptcy that can only be filed with a licensed trustee in bankruptcy.