Student Loan Debt and Bankruptcy – What you need to know

Government student loans are a great way to help you pay for your post-secondary education and the Government of Canada (and most provincial or territorial governments) work together to deliver federal and provincial student loan and grant programs for any designated college, university or other qualified post-secondary institution. This makes getting student loans simpler for you, but what happens if you have difficulty paying it back?

A recent CIBC survey suggested that 51% of Canadian students will have to borrow money to pay for tuition, living expenses and books and a 4 year degree will cost the average student $28,000 in student loans (60% federal and 40% provincial). When most students take those loans, they don’t put much thought into what to do when it’s time to pay it back after graduation and the 6 month grace period. Defaulting on student loans is a reality for over 10,000 students each year, but you can apply to get some relief from the Government.

In British Columbia we have a Loan Forgiveness program. If you qualify, the Province of BC will forgive the outstanding B.C. portion of your Canada-B.C. integrated student loan debt at a rate of up to a maximum of 20% per year for up to five years. If you complete five years of employment, all or a percentage of your B.C. student loan debt will be forgiven. While you are in the loan forgiveness program, the Province will also pay any outstanding interest that accumulates during each year you are registered in the program.

You may be eligible if you:

  • Are in repayment of an outstanding B.C. student loan (not restricted in default, delinquent or bankruptcy)
  • Have graduated from an accredited post-secondary educational institution
  • Have been working at a publicly funded health care facility in an underserved community in B.C., or working with children in an area where there is an identified shortage in B.C.
  • Have been employed (full-time, part-time, and/or casual/on-call) at a publicly funded facility in B.C. for 400 hours per year of employment
  • Are not enrolled in full-time post-secondary studies

Student Loan Debt and Bankruptcy

Student loans are not a debt that can be discharged from bankruptcy unless you have been out of school for at least 7 years, however, there is a 5 year HARDSHIP RULE where your student loan debts can be discharged if you have been out of school for 5 years. You could qualify for the hardship rule if you:

  1. A) Acted in good faith with respect to the loan for the first 5 years (i.e. Made payments, applied for interest relief, remained in contact with student loans)
  2. B) Are experiencing current financial hardship
  3. C) The financial hardship is expected to continue for the foreseeable future

This hardship rule is very beneficial for those whose personal situation means that they have very little likelihood of paying the loans off even after a bankruptcy – such as those who are experiencing ongoing medical issues, challenging personal situations, (single parents), chronic underemployment, etc.

If you are having difficulty paying off your student loans or other debts, the best way to find out what you may or may not be eligible for is to call your local Bankruptcy Trustee. Book a free consultation and find out exactly where you stand and together, you and your trustee can make a plan. Take control of your debt and get your life back. Reduce your stress and start the new year off right.

 

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