Business Bankruptcy in Canada is primarily governed by the Bankruptcy and Insolvency Act (BIA), a…
In Canada, one in every seven personal bankruptcies is a result of student debt.
Student loans are big business! It’s a billion dollar industry, but this wasn’t always the case.
In the 70’s, students could work a summer job and earn enough to pay off their yearly tuition. Since then, tuition costs have multiplied many times. High tuition costs result in high debt at graduation. This coupled with an unstable job market results in many of these debts going unpaid.
These rising tuition costs are causing a financial crisis among young people just entering the job market. The average age of a student debtor is now 35.1 years of age which is just under the peak age recorded in 2012 of 36.1 years of age. In the 18 – 29 age group, debt has risen by 20% over the past seven years. This has resulted in 3 out of every 10 students in that age group filing for some sort of insolvency.
Students are now graduating thousands of dollars in debt, beginning their careers well behind the starting line.
Why So Expensive?
Due to a vast reduction in government funding to post-secondary institutions that started in the 80’s, schools have been compensating by raising tuition. By 2016 the average tuition in Canada was $6000 per year, up 40% from 2006. In addition to tuition, each student must pay compulsory fees that average more than $800 per year. Students must also account for their monthly expenses while the cost of living in Canada keeps rising. As a result, student loans end up being a lot more than just the price of tuition.
The Student Loan and Debt
In 2016, the average four year graduate in Canada walked away with $13,000 in debt. However, this number was much higher for doctoral students. The more education you get, the more debt you accumulate. This resulted in doctoral students accumulating an average of $29,040 in debt. As of 2016, the total amount of money owing for government issued loans was $16.9 billion dollars.
However, many tuition costs are so high that government issued loans don’t quite cut it. So on top of a student loan, most students get a personal/professional-student line of credit or use credit cards. This allows them to cover the remainder of their tuition as well as their living expenses.
The Ontario Student Assistance Program (OSAP) only provides a maximum of $15,300 per year. However, several tuitions far exceed that. For example, the University of Toronto’s law school charges $36,441 per year. That means that OSAP covers less than half of that bill and students must find alternative means of funding to cover the rest.
At the end of it all, a lot of young people end up entering an already weak labour market with massive debts. To make things worse, unpaid internships are on the rise and many cannot afford to take them. So, students end up in professions that aren’t in their field of study to make ends meet.
As a result, many graduated students end up turning to personal bankruptcy in an attempt to relieve the burden of their debts and start fresh.
Students and Personal Bankruptcy
Some debts do not qualify for bankruptcy, one of which is the government issued student loan. The good news is that the government of Canada will write off your student loan after seven years or even five years for those in financial hardship. The issue then becomes the rest of the loans you took out to cover your tuition and school expenses. In Canada, a personal bankruptcy is an insolvency proceeding under the Bankruptcy and Insolvency Act that is administered by a Licenced Insolvency Trustee (LIT). A bankruptcy will eliminate most of your debts in exchange for any extra assets you have or any surplus income. However, this does not mean that you will lose everything. Most assets are exempt from seizure. This includes:
- $11,300 for the tools or equipment you need for work
- Unlimited clothing
- $6,600 for a motor vehicle
- $13,150 for furniture and appliances
- Your RRSPs, pension plans and life insurance policies.
Also during the period of your bankruptcy proceeding, if you receive any surplus income like a tax return or settlement, this will go toward paying back your creditors.
The Nitty Gritty On Personal Bankruptcy
A bankruptcy will give you an automatic ‘stay of proceedings’ which protects you from creditors. This means that all of the harassing phone calls and any other form of contact from creditors will stop. This also means that any legal action they currently have against you or have pending will halt. This includes any wage garnishments they have against you allowing your pay cheques to return to normal. If all goes well a personal bankruptcy can be discharged in nine months.
Keep in mind that a personal bankruptcy will affect your credit rating for six years after discharge. But it is much better to do this while you are young and have the time to have a career and financially recover.
If your student loans have turned into overwhelming debt you may need personal bankruptcy help. The first thing you should do is contact an LIT, who can guide you through your bankruptcy proceeding from start to finish.
Alternatively, your LIT may speak to you about other debt management strategies that require some level of repayment. These may include a Consumer Proposal, a debt settlement, a debt consolidation or a debt management plan.
When you enrolled in post-secondary school, you did so to ensure a brighter future for yourself. Don’t let student loan debt hold you back from pursuing the career that you want! Contact one of our experienced LIT for a free consultation to talk about your options and get your life and your career back on track.