Finally! After five years, my bankruptcy erased my student loan debts

2020-06-14   minute read

Dean Prentice


Do you have student loans that were not erased by a bankruptcy or consumer proposal? Most likely, you filed before you had been out of school for seven years — which is the minimum required period to include student debts under the Bankruptcy and Insolvency Act (BIA).

If you completed your consumer proposal or bankruptcy, and your student loan debt was not erased, you may not need to file a second bankruptcy or proposal. If you have been out of school for at least five years, you can make a court application to have your student loans discharged by your prior bankruptcy or consumer proposal.

The court will not always grant your request. However, the following summary of what the court considers relevant, what documents the court wants to review, and answers to common questions, can improve your chances of a successful application.

Student in a library studying

What the court will consider

In deciding to extinguish your student loan debt, the court’s main two questions are:

  1. Will the student loans continue to give you hardship if they are not erased?
  2. What attempts did you make since leaving school to pay down your student loan debt?

These questions come from Section 178(1.1) of the BIA, which reads:

(1.1) At any time after five years after the day on which a bankrupt who has a debt referred to in paragraph (1)(g) or (g.1) ceases to be a full- or part-time student or an eligible apprentice, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that

(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and

(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.”

The court considers numerous factors in answering these two questions, including:

Purpose, use and outcome of the student loans
  • Did you use the student loan financing for the intended purpose?
  • Did you complete the financed education?
  • Have you received financial gain from your education?
Efforts to repay the student loans
  • Have you made reasonable attempts to pay back the student loans?
  • Have you used available alternatives such as interest relief or loan remission?
Income, employment and lifestyle
  • Do you have sufficient employment and earnings to be reasonably expected to make payments on the loan?
  • What is your way of life (i.e. housing, spending, expenses, etc.)?
Circumstances surrounding your Bankruptcy
  • When did you file the bankruptcy or consumer proposal?
  • Did your student loans comprise a considerable component of the total debt in your bankruptcy or consumer proposal?
  • Did you have surplus income under the Superintendent of Bankruptcy's directive?
Mitigating factors
  • Have you made any offers to the lending administrators — and if so, what were their reactions?
  • Have you been hampered at any time with health problems that would have reduced or eliminate your ability to work?

Documents to Gather

The following documents — along with any additional information as discussed with the Licensed Insolvency Trustee — will support your application to the court to have your student loans discharged under the five-year rule:

Bankruptcy / Consumer Proposal 
  • Copies of your initial bankruptcy or consumer proposal documents from the Licensed Insolvency trustee
  • Copy of your Certificate of Discharge from bankruptcy (if you filed bankruptcy) or your Certificate of Full Performance (if you completed a consumer proposal)
Income Taxes
  • Income tax Notices of Assessment from the year of your bankruptcy or consumer proposal, and each year up to the current year
Income & Expenses
  • Proof of current household income
  • Proof of 'non-discretionary' expenses which support your ability to pay or not pay your student loans
    • Medical condition expenses
    • Childcare
    • Child or spousal support
    • Student loan repayments
    • Expenses as a condition of employment
    • A monthly budget using your current income and expenses
Assets & Liabilities
  • Proof of any student loan payments since filing your bankruptcy or consumer proposal
  • A list of assets with values and the amount of any outstanding loans
    • This could hurt you if the court feels you've not paid student loans because you've been more interested in financing new assets (mortgages, vehicle loans)
    • This could help you if the loans you are paying were in existence during your bankruptcy and you can demonstrate you have not been seeking additional credit since being discharged
Education & Employment
  • A summary of your education and employment since filing bankruptcy
Summary of Circumstances
  • An explanation of why you will continue to experience financial difficulty if the student loans are not forgiven
  • A summary of what actions you took to seek interest relief or loan remission

Frequently Asked Questions

Can Canada or provincial student loans object to my application?

Yes. No one knows ahead of time whether a creditor will object to your application. You make the application first, and the creditor may oppose once they receive the notice of the court hearing.

Does the Licensed Insolvency Trustee make the application for me since it involves my Bankruptcy?

No, you make the application yourself, possibly with the help of a lawyer. The Licensed Insolvency Trustee may have some examples of documents you can review to help you prepare your application.

What does it cost to make the application?
The cost varies province to province. If there was no court hearing in your Bankruptcy or Consumer Proposal, you pay the court filing fee. The cost is currently (2020) $50.00 in B.C.

Life-Changing Debt Solutions

If you have questions about bankruptcy or a consumer proposal — including what debts you would be able to include or whether you would benefit from alternative solution, start with a call to MNP.

Under Canadian bankruptcy law, Licensed Insolvency Trustees must provide a Free Confidential Consultation to review your financial situation and discuss options to deal with unmanageable debt. They must also answer any debt-related concerns you have and provide an unbiased opinion as to your best path forward.

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