You accumulated significant debt while attending college or university with the full expectation that you would be able to repay that debt. Now you are struggling to keep up with your payments. Filing bankruptcy or a consumer proposal may be an option, however, there are some things you need to know about what types of student debt can be included in a bankruptcy (or proposal) and which ones will be eliminated if you do.
Government Student Loan Debt
There are special bankruptcy laws that apply to loans obtained through government loan programs, including Canada Student Loans and Ontario Student Loans (OSAP).
These government funded student loans are only eligible to be discharged (cleared) through a personal bankruptcy if it has been more than seven years since the date that you ceased to be a full or part-time student. To find out if your debts are old enough you need to know your “end of study date”. To determine your end of study date, you can call the National Student Loan Service Centre at 1-888-815-4514 and OSAP at 1-807-343-7260.
If your student loans are older than seven years, they will be eliminated in a bankruptcy.
If your student loans are less than the required seven years, bankruptcy can still help provide some temporary cash flow relief. While you are bankrupt, your student loan lender cannot pursue collections. This is because there is a stay of proceedings during the bankruptcy; however, interest still accrues during this period, even though you don’t have to make student debt payments. And because the loans are not eliminated by bankruptcy, your payments will resume after the bankruptcy is completed. The benefit of a bankruptcy in these situations is that it has dealt with your other debt so that you can now afford your student loans.
Private Loans & Credit Card Debt
Many banks and other private lenders offer credit support for students. It’s not unusual for students to borrow additional funds to pay for books, tuition costs and living expenses not covered by their parents or a federal or provincial student loan program. The most common are student lines of credit and student credit cards.
Any unsecured debts owing to a private lender and not part of a government student loan program are included in a bankruptcy no matter how old. There is no seven year waiting period.
If you have accumulated significant credit card debt while you were a student, or took out an unsecured loan from a bank, these debts will be eliminated if you file bankruptcy. The only exception would be secured loans such as a secured car loan.
What If My Private Bank Student Loan Is Co-Signed?
In many cases, a bank asks for a co-signer on the debt (a parent or grandparent for example) to guarantee that someone with stronger financial resources would be able to repay the loan in the event that you, the borrower, could not. If there are co-signers on your student related bank loan and you are unable to pay the debt, then your co-signer will be responsible for the full amount of the unpaid debt, including on-going interest.
If you are struggling with your debt payments and have questions about whether or not your student debt would be discharged if you file bankruptcy, contact an experienced Ontario trustee for more information.