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Can Student Loans Be Included in Consumer Proposals?

Consumer Proposal Services in New Westminster, BC

Student loans can make it feel impossible to get out of debt. The trustees at J. Bottom & Associates are here to assist you, offering consumer proposals and debt consolidation services in New Westminster, Port Coquitlam, and North Vancouver, BC. Many Canadians have student loans and student debt, but there may be an answer to your financial struggles. Student loans can be eliminated in a consumer proposal, but there are special rules that apply. As these matters can be pretty complicated for Canadians in debt, our experienced trustees are here to assist you. Reach out to us today to schedule your free consultation.

Exploring the 7-Year Rule

Section 178 (1)(g) of the Bankruptcy & Insolvency Act states that “any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred:

(i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or

(ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student”.

These rules also apply when filing a consumer proposal or bankruptcy for student debt in Canada. We realize you aren’t an expert on legal jargon, which is why we want to break down what these rules mean for you. If you have been out of school for at least seven years, your student loans would be eliminated in a consumer proposal. If you have not been out of school for at least seven years, your student loan might not be automatically discharged, even if your creditors accept your proposal. In the second scenario, your creditors would receive a prorated portion of your consumer proposal payments, but after that proposal, they can still pursue the rest of their money. They cannot do so if they specifically agreed to the discharge of the loan as a term of your proposal.

What Are My Options for Newer Student Loans?

You have options if your student loans are not at least seven years old. If you are not able to pay off your student debt, a consumer proposal could still be your answer. If you have other significant debts such as credit cards or unsecured bank debts, a consumer proposal will eliminate them, allowing you to afford your student loan payments. You can request that your student loan lender discharges your student loans in full as part of your proposal. While they may not go for it, it can be enticing to them if you are close to your seven-year mark. This is because you may file bankruptcy, and they could get more in a proposal, making it a win-win. If you are having trouble with affording your student loan debt, you should speak with our Licensed Insolvency Trustees to find debt relief solutions that work for you.

Can I Include Student Loans in My Consumer Proposal or Bankruptcy?

If you have not been in school for at least seven years, your student loans can be written off in a consumer proposal or in a bankruptcy. Any student loans not meeting this requirement, or being newer than seven years old, will survive the consumer proposal or bankruptcy process, requiring you to make payment arrangements. Interest will continue accruing unless you qualify for interest relief. Federal and provincial student loans have Repayment Assistance Programs that include interest relief. A court application can be made to discharge your student loans if you have been out of school for five years and have acted in good faith while continuing to experience financial difficulties. Certain loans obtained by students who attended post-secondary institutions may not be considered student loans, but Student Lines of Credit. These loans qualify for being discharged by a consumer proposal or a bankruptcy. Our trustees can help you make these rules personal to your unique situation and determine your best course of action.

Debt Relief Options in BC

The team at J. Bottom & Associates offers a variety of debt consolidation and relief solutions, including personal bankruptcy, consumer proposals, credit counseling, insolvency, student loan debt, and more. Our legal team provides student loan debt help as a government-licensed insolvency and financial restructuring firm. If you’re in too much student loan debt in Canada, you’re not alone. The average student loan debt is more than $25,000, but that figure goes up to over $40,000 for students who supplemented their government loans with private funding. We can help you determine if you are eligible for student loan debt forbearance. Canada Student Loan balances may be forgiven if you are a family doctor, nurse practitioner, or other professional. Borrowers can file consumer proposals to stop the government from seizing your pay or freezing your bank account. In many cases, student loan consolidation may be your best option. Loan consolidation rates are often favourable, but there may be drawbacks to this method as well. We’re here to help you determine your best college debt solution.

Helping You Explore Your Options

Don’t panic if you’re in over your head in student debt. While not paying your student loans may seem like a way out, it’s not the answer. Doing so has serious consequences. Not making student loan payments for nine months results in them being sent to the Canada Revenue Agency for collection. The CRA can withhold your tax refund to apply it to your student debt. Canada Student Loans can also appear on your credit report and negatively impact your credit score if you don’t make your payments. The only ways to stop paying without consequences are to file a consumer proposal or bankruptcy. Our trustees are here to help you break the debt cycle with proven strategies to get out of debt. There’s no such thing as a silly question, so contact us today for your free consultation.