How are Student Loan Debts Treated in a Consumer Proposal?

When you first borrowed money from the Government of Canada for your education, you probably didn’t anticipate at that stage that you would not be in the position to repay this loan. This loan allowed you to secure an education and the opportunity to anticipate future employment in association with your choice in a career and that would provide the income to pay back the debt. Unfortunately, you never know what to expect from life, which could have meant you were not able to complete what you were studying, you suffered a health issue, or you were not able to secure employment in regards to your chosen career field. 

This might have left you with the burden of debt for your student loan that you are unable to pay back in full. But do you really want to file for personal bankruptcy? A consumer proposal is an alternative to personal bankruptcy that involves a proposal to a creditor to compromise your debt. Student loans receive special treatment when it comes to insolvency filing, while the “end of study date” will be the determining factor in whether your student loan debt will be allowed to be compromised within the proposal. 

Student Loans And Consumer Proposals

A Licensed Insolvency Trustee can assist you with filing a Consumer Proposal to erase your student loan debt provided your studies came to an end at least 7 years before you file a Consumer Proposal. The “seven-year” rule has to do with s178(1)(g) of the Bankruptcy and Insolvency Act in Canada.  

It doesn’t really matter if you were able to complete your studies or not or whether you received a diploma or degree. 

If you are not sure if the seven-year period has passed, you can confirm your “last date of study” with National Student Loans. If seven years have passed, a Consumer Proposal can be used to consolidate your debt into one monthly payment, which will include your student debt. 

Consumer Proposals are useful to stop any interest on your debt from accruing, including student loan debts. It will also mean that you will be paying less than what you actually owe (subject to credit approval). 

If a RAP is not enough relief to provide a remedy to your financial issues, or when you have additional debts over and above a student loan, a Consumer Proposal might be the ideal solution for you. A Consumer Proposal will provide protection from all your creditors and will stop wage garnishments and collection calls. 

A Licensed Insolvency Trustee will review your circumstances and then explain the options available to you to remove your student debt. It won’t cost you anything to get the process started, and we provide free consultations. 

Options Available to Remove Student Debt

1. If your last study date was over 7 years before filing a Consumer Proposal, then your student loan can be added to your proposal which has been accepted by most of your creditors. 
2. If your studies ended less than 7 years before filing a Consumer Proposal, you will still have to pay your student loan back on completion of the proposal. Proof of a claim that is filed by a lender allows them to take a portion of the dividends in the proposal which reduces the balance that is owing, yet they can carry on charging you interest over the term of your proposal. A student loan cannot go after you for payments during your proposal term. 
3. If your studies (part-time or full-time) ceased less than 7 years before you file a Consumer Proposal and the proposal has provided a compromise from your student loan and they (the student loans) have voted in favor of the Consumer Proposal and it is accepted by most of the creditors. Then your debt that is left on your student loan can also be compromised in the proposal. 

It is essential that you have verified your “end of study date” with the Government of Canada. If you returned to study after the original loan that was provided for your studies, this will complicate the calculation when it comes to the end-of-study date.

You should discuss this with your Licensed Insolvency Trustee. If you are interested in finding out more about a Consumer Proposal to erase student loan debts, contact Remolino Associates, for a free assessment.