Is Bankruptcy The Answer to Student Loan Debt

Is Bankruptcy The Answer to Student Loan Debt

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated October 20, 2020

Student debt is becoming an increasingly concerning issue in Canada. With tuition fees skyrocketing over the past few years, students have had to take out larger debt loads in order to pay for their education. The problem is, it can take years, even decades to pay off all that debt and can be a real burden when students are just getting their lives started.

To read about Canada’s Federal Debt Clock, click here.

Approximately 67% of Canadians who were recently polled said they graduated with an average debt of $22,084. Just 33% graduated with no student debt to pay off. That’s a lot of money to be burdened with, especially when many students are only just starting to work by that point.

Graduates typically land entry-level jobs after graduation, which don’t usually pay all that much. It takes time to gain experience and climb the ladder in a career before people start seeing much larger paychecks coming in. In the meantime, their student loans are still there waiting to be paid off.

While many Canadians are able to successfully pay down their student loans – albeit often after years worth of payments – some struggle to make any strides. In these cases, it may be necessary to introduce some sort of resolution to deal with these debts, and some former students are looking to bankruptcy to solve their debt problems.

For some information about personal bankruptcy, check out our video.

The question is, should bankruptcy be sought as a means of alleviating student debt?

Bankruptcy to Eliminate Student Loan Debt

The Bankruptcy Insolvency Act (BIA) was established to give Canadians a way to seek relief from their debts. Usually, bankruptcy is used to alleviate debt such as credit card debt, personal loans, and lines of credit.

But now, student loans are getting special treatment under the Act. Years before, student loans were treated like the average unsecured debt. However, current legislation has required that consumers must be out of school for at least 7 years before they are able to include their student debt in bankruptcy filings.

Want to know if the Federal Government provides debt relief? Find out here.

What is the “7-Years” Waiting Period?

The “7-year rule” refers to the length of time that a person must be out of school before student loans can be eliminated by bankruptcy. When you file for bankruptcy, at least 7 years must have gone by since the official date of the end of your studies. This date refers to the last day you were registered as a student, not the last day you went to class.

The BIA specifically excludes student loans if that 7-year waiting period has not yet passed. To find out what your exact end of study date is, you can get in touch with the National Student Loan Centre. Once you find out what your end of study date is, simply add 7 years to that date and that is when your student loan may be handled through bankruptcy.

If you’ve been out of school for over 7 years, your student loan debt may be discharged under the Act if you file for bankruptcy or if you file a consumer proposal to your creditors. If it’s been less than 7 years since you attended a post-secondary education institution, your student loan won’t be automatically discharged through bankruptcy.

Read this if you’d like to know how a consumer proposal would affect your credit.

Dealing With Student Debt Before the 7-Year Waiting Period

If your student loan is under 7 years old, you may still have some options available to you that may help make paying down your student debt more manageable. For starters, you can get in touch with your student loans office and negotiate a different payment plan. The National Student Loan Service Centre offers repayment assistance through their Repayment Assistance Plan.

With this plan, you may be able to request a temporary reduction in payments or request more time to pay off your student loan. In fact, you may be able to extend the length of your payment period by as much as 14.5 years.

You may also want to consider applying for a hardship reduction whereby the government will lower your interest rate for a few years, then lower the principal owing after that low-interest period. However, you will need to prove that you are unable to make payments in full toward your student debt in order to be eligible for this arrangement. Even if you do qualify, approval is not guaranteed.

It should be noted that even though these options can help you better manage your student debt, they will increase the amount you owe in interest and actually keep you in debt longer. Aside from bankruptcy or a consumer proposal, the hardship option is the one that will truly reduce your total student loan payments made over time.

Before you decide to file for bankruptcy, it’s best to consider these other options.

Dealing With Other Debts On Top Of Your Student Loans

While your student loans debt might not be included under the BIA and cannot be discharged before the 7-year waiting period has expired, you can still deal with other debt under the act before that time is up. Student loans can be part of your overall debt problem. Many Canadians struggle with mounting debt from different sources aside from just student loans, including credit card debt, personal loan debt, and so forth.

Looking to consolidate your credit card debt? Try reading this.   

If you have other major debts, bankruptcy can still be a viable option for you, even if you haven’t yet met the waiting period. Filing for personal bankruptcy can help you deal with other debts to make paying back your student loan more feasible.

Already filed for bankruptcy? Look here to discover some ways of rebuilding your credit.

Final Thoughts

Dealing with a lot of student debt can be incredibly stressful, especially with all of life’s other financial obligations. If you are struggling to pay off your student debt, contact a Licensed Insolvency Trustee. These experts will be able to help you navigate all your options and decide which one works best for you, so you can finally rid yourself of all that burdensome debt.


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Lisa has been working as a writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same. She's used a variety of financial tools over the years and is currently growing her money with Wealthsimple, while stashing some capital in a liquid high-interest savings account so that she always has a financial cushion to fall back on. She's also been avidly using her Aeroplan TD credit card to collect as many Aeroplan points as possible to put towards her travels!

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