Student Loan Bankruptcy: Filing for Bankruptcy
With Student Loan Debt
Many people who are leaving their University or College studies are trapped with debts because of their student loans. Many of these individuals are concerned how this will affect their ability to wipe out this debt by going bankrupt. A Student Loan Bankruptcy can be more complex as their are certain rules about when student loan debt can be discharged in a bankruptcy.
In order to fund their continuing education, many people rely on student loans. Unfortunately, this use of student loans, combined with busy schedules filled with school and studying, many people can become overwhelmed with student loan debt, and other debt they take on while continuing their studies.
Fortunately, There are Options for Dealing with Student Loan Debt
If you are finding it difficult to repay your student loan debt you can take advantage of certain ways to deal with this debt, without filing bankruptcy or a consumer proposal:
Take Advantage of the Six-month Grace Period
If you live in any province except Quebec you can take advantage of a six-month grace period after you have completed your studies to avoid paying on your student loan debt for 6 months. Interest on your provincial loans will not be charged during this grace period, although if you have federal student loans, interest will be charged on these loans during your grace period. It is important you make an informed decision.
Take Advantage of the RAP (Repayment Assistance Plan)
All Canadian provinces with the exception of Quebec have a Repayment Assistance Plan, which allows you to have your financial situation reviewed if you are having trouble making the regular monthly payments on your student loans.
The RAP offers relief measures including:
- Stopping payments until you have a higher income;
- Revising your student loan payment to no more than 20% of your gross family income;
- Revising your payment on your student loans to an amount based on family size and gross income;
- Interest relief.
You must apply for enrolment and it is necessary to re-apply every 6 months. The RAP website has more information or you can contact your provincial student loan aid centre.
Revising Student Loan Terms
If you are having difficulty making your student loan payments it is possible to contact the institution that issued you your loan(s) or the National Student Loans Service Centre to request a Revision of Terms. If your request is accepted, then your monthly payment will be decreased and the time you have to repay your loan will therefore increase. The Revision can be temporary or permanent.
One important thing to note is that you will be paying more interest as your loan will last longer.
Deferred Payment Plan (DPP) – Student Debt Relief in Quebec
If you are a resident of Quebec you can take advantage of the DPP (Deferred Payment Plan) if you can prove that your income is below the threshold for eligibility based on your family situation for a period of four months. The maximum period of time for student loan relief is five years.
Need More Assistance?
If you feel your financial challenges are more severe you might need more assistance. In that case, a Trustee can help you explore additional options for dealing with debt such as a consumer proposal or filing bankruptcy. While student loan debt can only be discharged through bankruptcy or a proposal if you have been out of school for 7 years, you can get your other debts under control. With your other debt dealt with, you will find it easier to pay your student loan debt payments.
Filing a Consumer Proposal
Many individuals struggling with student loan debt want to repay their debt. Almost all debtors who borrowed money are good, honest, hardworking people. In some cases, student debtors need to reorganize their debts into a more affordable repayment plan.
By making a consumer proposal with your creditors, you can reduce the amount of debt or increase the time you have to pay off the debt, or some combination of both. By consolidating your debts into a manageable monthly payment plan you can get your debts under control. Students can only include their student loan debt in a consumer proposal if they have been out of school for seven years or more, although your student loan debt can become easier to manage with your other debts handled.
Even with assistance, many people find it difficult to pay off their debts. Bankruptcy will give you a fresh start. Filing bankruptcy only discharges student loan debt if you have stopped being a student for at least 7 years. If you have been out of school for less than 7 years, you can apply for a “hardship application”. There is no guarantee your “hardship application” will be accepted and you can only make such an application if you have been out of school for at least 5 years.
If your student loans are not discharged in bankruptcy, you will still find it easier to make your student loan payments.