According to the Office of Bankruptcy Supervision (OSB), the percentage of consumer insolvencies involving student loans has been on a constant uptick, rising from 9.7% in 2012 to 12.3% in 2018.
Another study found that nearly half of those in default of their student loans had experienced a debt spiral, starting with exhausting their credit cards, then personal loans, and finally payday loans. The problem is inflated by students who took out loans but then failed to finish their post-secondary education, forcing them into low-paying jobs, or a combination of part-time jobs.
In Ontario, insolvencies involving student debt in 2018 totaled 17.6%, or one out of every six insolvencies. If you’re in the Toronto area, or in Hamilton, London, or Ottawa, Ontario and you’re facing financial difficulties stemming from student loans, contact Matthew R. Harris Law P.C.
Bankruptcy Lawyer Matthew R. Harris will listen to your situation, advise you of your options, and if necessary, help you file for the discharge of your debts under the Bankruptcy and Insolvency Act (BIA).
The Bankruptcy and Insolvency Act (BIA) allows you to discharge most of your debt — especially consumer debt. However, there are certain debts that are excluded from the BIA. Student debts can be particularly confusing, as some debts will be automatically discharged if you file for bankruptcy, while other debts will not.
Additionally, you must use a Licensed Insolvency Trustee (LIT) to commence the process of bankruptcy. Your assets will be sold, with some exemptions that vary province by province, and months later, your debt will be gone.
If you’ve obtained a student loan under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or the Apprentice Loans Act, you must have been out of school for seven years before your loan obligations can be discharged through bankruptcy.
The relevant BIA provision states that "any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or within seven years after the date on which the bankrupt ceased to be a full- or part-time student."
It's important to note that the provision states that this 7-year time period begins when the individual "ceases to be a full or part-time student." Specifically, this means full or part-time status at any point in the last seven years. If an individual returns to school for one term or even one month, the clock starts over.
The criteria for determining when your schooling ended is the latter of the date you stopped attending school or the last day of your exams in your final semester. If you miss your end date by even one day, your insolvency filing for student debt may be denied. You may want to err on the side of caution in determining the date.
There is also the possibility of a 5-year window. The bankruptcy judge has the option of issuing a “court-ordered discharge” under certain hardship conditions. You must apply to the court to qualify for this 5-year exemption. Two conditions apply:
The bankrupt party has acted in good faith in connection with their liabilities under the debt
The bankrupt party has and will continue to experience financial difficulty to such an extent that they will be unable to pay the debt
The 5 and 7-year waiting periods apply only to government-backed student loans. If you’ve obtained private loans, there is no waiting period. You can include these loans in your bankruptcy filing or consumer proposal for debt reorganization at any time. They may object to your discharge, and this is something that Matthew R. Harris P.C. will be more than happy to assist you with. If you're unsure whether or not the 5 or 7-year window applies to your unique circumstances, contact Matthew R. Harris Law P.C. today for guidance!
Debt can easily pile up after finishing school — or worse, after dropping out — because living expenses must come first. If you get stuck in the spiral of using credit cards and other lines of credit and then resorting to payday loans just to get by, you no doubt need to examine the options available to you under the BIA. Don't face these challenges alone. Call or reach out to Matthew R. Harris Law P.C. today for reliable legal guidance.
If you’re located in or around the greater Toronto area, or in Ottawa, London, or Hamilton, Ontario, contact Matthew R. Harris Law P.C. Bankruptcy lawyer Matthew R. Harris will discuss your situation with you, present you with your available options, and then work with you to pursue the best available outcome. Schedule a consultation today!