Personal bankruptcy and student loans

Student Loans and personal bankruptcy

Student Loans and personal bankruptcy

You have student loans, but you are no longer able to pay them? Thinking of personal bankruptcy to settle your debts? Find out because your student loans may not be free!

Personal bankruptcy is a legal process that allows an insolvent consumer (unable to fulfill his / her financial obligations) to clear his debts and make a fresh start.

Non-dischargeable debts

Non-dischargeable debts

Bankruptcy eliminates most, but not all, debts. These debts, called non-dischargeable debts, are generally fines, penalties, allowances and other payments resulting from a sentence of a court. However, your student loan debt may also be non-releasable.

The 7-year rule

The 7-year rule

Indeed, your student loans will be erased as part of a personal bankruptcy only if the date of the end of your studies dates back to more than 7 years ago.

Other debts

It is important to note that all other debts incurred during your studies (credit cards, line of credit, car loan, etc.) are released by bankruptcy. Only student loans under the Loans and Bursaries Program are non-releasable.

The logic

The logic behind this law leaves room for debate, but simply put, the government assumes that you have received a “good” of value (your education) and that it would be unfair to be able to get rid of the debt thus incurred. If you had used this money to buy a house, for example, you should hand over the keys to the bank. On the other hand, in the case of an education, it is difficult to hand over one’s knowledge and diploma to the government.

Need help?

If you have student loans and are looking for a solution to solve your debt problems, contact a counselor who will explain your options.