Does Bankruptcy Clear Student Loans?

Student loans can be discharged in a bankruptcy IF you ceased being a full or part-time student more than 7 years prior to filing an assignment in bankruptcy. The filing of a bankruptcy stops your creditors from pursuing you for collection of their debt, and your discharge will eliminate your responsibility to repay the student loan if you are past the seven-year threshold.

Some other factors to consider before filing an assignment in bankruptcy to clear student loan debt are:

• Verify your end of study date to ensure you are past the seven-year discharge threshold. A return to studies may have re-started the clock even if you did not obtain further student loans.
• Student loans may oppose your discharge from bankruptcy which will result in a hearing being held. The presiding officer can grant you a discharge, delay the effective date of your discharge, or impose conditions (monetary or otherwise) that must be complied with prior to obtaining your discharge. Student loans historically opposed a discharge if the student loan debt was eligible for discharge on the basis that the loan was used to fund an education that will provide future income and thus the capability to repay the debt. More recently, student loans have not been opposing unless the debt is large and the expected future income from the education is significant (ex. Doctor, lawyer).
• Likely unable to obtain future student loans if student loan discharged in a bankruptcy
• Likely unable to change courses and receive future student loans if file assignment in bankruptcy
• Interest will continue to accrue on non-dischargeable student loans.

If you are struggling with student loans, contact one of our Licensed Insolvency Trustees for a free, initial assessment to analyze if a bankruptcy will provide you with the relief to move forward with a fresh start.

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency
and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)