Student Loans and CRA Debt
When people come and meet with me, they usually assume that certain debts can be included in bankruptcy or a consumer proposal, for instance, vehicle, credit card, payday loans, etc. But what people may not know, is that you may be able to include Student Loan and Canada Revenue Agency debt.
Student Loan Debt
Student loan debts can be discharged if you have been out of school as either a part time or full time student for more than 7 years. You can also avoid bankruptcy and settle your student loan through a consumer proposal.
However, if you have been out of school for less than 7 years, student loan debt will not be automatically discharged by a bankruptcy or settled by a consumer proposal and you will remain responsible for the repayment of the debt.
Even though your student loan debt may not be included in your bankruptcy or consumer proposal, there is a still a stay of proceedings in place. This basically puts a freeze on any debt collection or payments until the bankruptcy has been discharged or the consumer proposal has been completed. With that said, if your budget allows, we recommend that you continue with payments to avoid accumulating additional interest. Your student loan provider may ask for a letter from your trustee consenting to the continuation of payments during the bankruptcy or consumer proposal period.
Canada Revenue Agency will not approve a consumer proposal as easily as other creditors. CRA may not consider the same terms that credit card companies and financial institutions may accept because they never actually approved you for credit – your outstanding debt forcibly involved them.
CRA has a unique and more complex list of criteria you must fulfill before they will consider your proposal. As a first step, you must first file all outstanding tax returns before making a consumer proposal so it is clear as to how much you actually owe. Once your total tax debt has been determined, the proposal must offer CRA more than what you would be required to make under a bankruptcy. CRA must also believe that you can make the payments agreed upon without missing them or accumulating more debt.
Another factor CRA focuses on in deciding whether to approve your consumer proposal, unlike your creditors, is your ability to demonstrate honourable behavior. CRA does not look kindly upon failing to file taxes year after year. Arguably, they want you to know you had a good reason. Otherwise, your consumer proposal may be quickly rejected. If this is the case, bankruptcy may be the best option for you.
CRA will require your commitment to paying your taxes going forward. They want assurances that you will be making all required payments from that point forward and continuing down an improved path. CRA will only accept your proposal if they believe that you will continually file and pay your taxes regularly so you do not fall behind again.
So, if you are struggling with debt, and are wondering if your Student Loans and CRA debt can be included in bankruptcy or a consumer proposal, contact our office today for a free, no-obligation consultation. We will review your situation and come up with the best solution to meet your needs.