If you find yourself in a financial nightmare where you cannot get out from under a mountain of debt because of your student loans, you may be wondering if bankruptcy is the right option for you. There are rules for declaring bankruptcy when you have student loans. In Canada, we have what is known as the Bankruptcy & Insolvency Act, which lays the groundwork for what you can and cannot do when you file for bankruptcy. One such rule is known as the seven-year rule.
What Is The Seven-year Rule?
When declaring bankruptcy when you have student loans to pay off, you have options. If you have been a student in the last seven years and are unable to pay your loan, you can file for bankruptcy which will protect you from collections and garnishment but once the bankruptcy is complete you will still owe for this loan. If you have been out of school more than 7 years, then the debt is discharged by the bankruptcy in the regular way. You can wait until seven years have passed to be eligible for the seven-year rule and declare bankruptcy then. Or, if you find yourself with other unmanageable debts on top of your student loans, you can still file for bankruptcy and at the same time discuss your future options for your student loan..
The Provincial or Federal student loan legislation responsible for issuing your loans will determine the date on which you stopped being a student, whether you went to school full or part-time. This means that in the seven years following your last day of education. If you are unsure then it is important to check with them in advance of your decision.
In addition to the seven-year rule, if you ceased to be a student for five years and find yourself experiencing undue financial hardship, you may qualify for what is known as the financial hardship provision.
Bankruptcy Student Loans And The Hardship Provision
The hardship provision applies to those who have ceased being a student after five or more years and have either already declared bankruptcy, or are looking for an early discharge from their student loans because they simply cannot afford to make the payments. This provision is decided by a court thus you will most likely want to pay a lawyer to assist you in this process. The court will determine if you have acted in good faith in attempting to repay your loans, and have experienced undue financial hardship that has prevented you from paying off your debts. The court will look into your financial history and see how you have spent your student loan money, and if you have made an effort to repay them through repayment assistance programs or have met with a debt counsellor.
Bankruptcy student loans, the hardship provision, and the seven-year rule may be hard to comprehend. We can help you sort out your financial situation so you can get on with your life free of student debt. Please contact us for more information.