Can my student loan be included in a bankruptcy?
Student loans can create a sense of vulnerability among young workers as they are often on the labour market without having been able to settle their student loan. When it comes to repaying student loans, it is not uncommon for graduates to accumulate other payments and financial liabilities.
Not surprisingly, many people who consult licensed insolvency trustees (LIT) have a student loan.
When a person does not have the resources to repay their debts, which very often include student loans, bankruptcy may be a possible solution. Student debts are treated in a particular way in a bankruptcy. In fact, the student loan must meet certain conditions to be erased in a bankruptcy. The same conditions also apply in the case of a consumer proposal.
The rule is simple: Whether it is part-time or full-time, there must be 7 years or more between the end of your studies and the date of the bankruptcy.
If 7 years have passed between the signing of your bankruptcy and the end of your studies, your student loan may be included in the bankruptcy and you will be released from it. If the deadline is less than 7 years, bankruptcy will not be able to free you from your student loan.
It is also important to know that a return to school, full-time or part-time, pushes the deadline again. It is then necessary to restart the calculation of the 7 years. It is, therefore, necessary to refer to the date of the last studies to calculate the 7 years rule.
Before you decide to file bankruptcy, there are other options available to you:
Take a payment agreement
Try to come to a payment arrangement with the institution that originally gave you a student loan. Try to lower your monthly payments, even if you have to extend the repayment period.
Make a debt consolidation
This will allow you to consolidate all your debts together, including your student loan. You can then settle in one payment per month for most of your debts. Debt consolidation is available in the majority of financial institutions and is accessible to consumers (but can be difficult to be approved for).
Government assistance programs
If you aren't accepted for a consolitaion loan, there is a program in Ontario that helps consumers stuck with a student loan. This program makes it possible to reduce repayments and even to suspend payments during more difficult periods.
OSAP Repayment Assistance Program
If you're struggling with debt, including student loan debt, contact our office today for a free, no-obilgation consultation.