Bankruptcy

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Student Loan Bankruptcies
Section 178 of the Bankruptcy & Insolvency Act deals with what debts survive a Bankrupt's discharge. Section 178(1) (g) was added to the Bankruptcy & Insolvency Act in 1998 and has been amended a few times. At the date of writing this (2011), this section of the Act reads as follows:

For student loan debt, if the bankruptcy is filed seven or more years after the date on which the bankrupt ceased to be a full- or part-time student, the bankrupt's student loan debt does not fall within paragraph 178(1) (g) of the Bankruptcy & Insolvency Act as an undischargeable debt and is, therefore, eligible for discharge along with the other dischargeable debts of the bankrupt. However, if it had been less than seven years since the bankrupt ceased to be a full- or part-time student at the time the bankruptcy was filed, then the student loan debt falls within paragraph 178(1) (g) of the Bankruptcy & Insolvency Act and is, therefore, an undischargeable debt that will not be released by an order of discharge.

However, much of what happens in the application of Bankruptcy legislation is based upon case law. In this regard, a very important point that a person must review before filing bankruptcy is when they ceased to be a student.

The Courts have held that the seven years starts from the end of study date. This is not the date that a person dropped out or the last day that they attended at the school, but rather a date that is on file with the government as being the date at which the program ended. It appears to be the last day in the month when the program ended, however, anyone considering a bankruptcy where a student loan is involved should determine when their end of study date actually is. If the current date is close to being seven years from the end of study date, then a person considering bankruptcy may want to wait until after seven years from the end of study date, so that the student loan will also be discharged.

To determine the end of study date, a person can call the following numbers and request the date:
Canada Student Loan (CSL) 1-888-815-4514
Ontario Student Assistance Program (OSAP) 1-807-343-7260

Student loan debt, although dischargeable after seven years, may still become subject to a Court determination as to whether or not it should be discharged without conditions. This happens if Canada Student Loans chooses to oppose a bankrupt's discharge and request that the discharge be made conditional upon payment of some amount. The Court will review the facts and the Registrar will make a determination.

For example, say a person completes their education and derives significant benefit from that education. Perhaps, that person is now Medical Doctor earning a significant amount of money, and has the ability to contribute back to the Bankrupt estate, it is possible for Student Loans to still oppose the discharge and ask that a discharge be granted conditional upon whatever condition the Court feels is reasonable.