Can I Include Student Loans in A Consumer Proposal in Canada?

student-loan-debt-consumer-proposal
Yes!  But hold on, there’s a lot of different things you need to know.

First, you should know that a consumer proposal is an option under the Bankruptcy & Insolvency Act  where, basically, you can offer to make a deal with your creditors. They can be really helpful ways to pay back part of the debt and get a fresh start, with the balance waived.  The reason I point out a consumer proposal is a proceeding under the bankruptcy act in Canada is that some of the rules and regulation that apply to bankruptcies, apply to consumer proposals as well, and one of those rules is about how student loan debt is treated.

Some things to know:

  • First, in order for a consumer proposal to actually completely deal with student loans, you have to have been out of school for a minimum of seven years when you file the proposal.
  • Second, you need to make sure the type of student debt you have is actually a student loan.  If you have a ‘student line of credit’ from a bank, that was not issued from the government, it may not be what the Bankruptcy & Insolvency Act considers a student loan, and if it’s not, the length of time out of school may not matter.
  • Third, even if you do have a real student loan for the purposes of the act, and even if you have been out of school for less than seven years, a proposal may still help.

Here are some examples:

John left college in 2002, and has $30,000 worth of student debt, and a credit card with a balance of $2000.  He is working, but not in the field he studied, and his income is not what he’d hoped.  Here we are 14 years later and he can’t afford his debt payments.  If we file a proposal for John, and his creditors accept it, once he’s completed the payments, the balance of debt is gone.

Stacey left university after one year, in 2013.  She only took $5,000 in student loans, but accumulated $25,000 in credit card debt after being out of work for 12 months.  She is working now, but all her debts are in collections.  She can file a proposal and when it is over she can make arrangements to continue payments on the student loans that are left (in many cases the student loans will participate in the payments in the proposal, meaning that although there is still debt left, it is less than what it may have been).

Luis on the other hand took out a Student line of credit with his bank in 2010, attended college for two years, and left in 2012.  He became ill and took a long time off work, and while he was off his line of credit became unmanageable.  Now he’s back working and can pay most of the debt, so he files a proposal as well.  All of the ‘student’ line of credit can be dealt with in his proposal, even though he left school just 3 years ago, because it was NOT a real student loan.

Here is a guide to student loan debt relief from Hoyes, Michalos & Associates which provides some information about your student debt relief options.

In the event you have student debt your cannot repay, I recommend talking to a licensed insolvency trustee about whether or not a consumer proposal will help.

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