What Happens to my Student Loans if I Declare Bankruptcy?

Unfortunately, student loans are something that many people have to deal with, and they can keep you in debt for several years. If you’ve recently filed for bankruptcy, you may be left wondering what happens to the student loans you have yet to pay off. The laws vary depending on where you live, so we’re here to offer some clarity on the proceedings in Canada.

Seven-year rule

In Canada, a regular student loan can be eliminated in the case of personal bankruptcy if you haven’t been a student at any point in the past seven years. This is in keeping with Section 178(1) of the Bankruptcy & Insolvency Act.

Student loans less than seven-years-old

After declaring bankruptcy, your student debt won’t be absolved if you don’t meet the criteria for the seven-year rule, but there are options in place that make paying back these loans more manageable. During bankruptcy, Canadians are protected by the Bankruptcy & Insolvency Act. While interest continues to accrue, student loan lenders can’t collect from you during this time. The terms of your loan can then be renegotiated in order to get a temporary reduction in payments or an extension of your payment period of up to 14.5 years. Both of these options result in an increased build-up of interest but can give you the time necessary to get back on your feet. You can also apply for hardship reduction, which, if it’s granted, will decrease interest costs for 10 years and may drop the amount owed after that period.

Private student loans

In the case of bankruptcy, student loans in the form of private bank loans can be automatically eliminated. This is true regardless of how old the debts are. To find out if your private student loans qualify for discharge in bankruptcy, we recommend you book a consultation with one of our bankruptcy trustees.

Hire a bankruptcy consultant

If you wish to discuss your finances, schedule an appointment with a bankruptcy trustee from Crowe MacKay & Company. Bankruptcy should only be filed as a last resort but, if it’s deemed necessary, it can allow you to turn over a new leaf. We’re here to help you every step of the way towards achieving financial stability. Contact us today for more information, or to book a free consultation.

This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual needs. This publication is not a substitute for obtaining personalized advice. If you require corporate  or personal Insolvency services, Crowe MacKay & Company provides custom solutions for clients, allowing them to live debt-free.


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Common Questions about Debt Relief

Our Licensed Insolvency Trustees are experienced and qualified to answer all your questions about personal and corporate debt. From identifying imminent financial trouble to providing commercial and personal debt relief options, we are committed to educating you so you feel confident and informed. Depending on your income, the amount of debt you have, your monthly financial commitments, and your future goals, we can recommend the best way forward and assist you with all legal and documentation processes.