This is a common question with a relatively simple answer. If you have been out of school for more than seven years, then the student loan debt will be discharged in your bankruptcy.

As an illustration; if you graduated from school in June 2006, then a bankruptcy filed after July 2013 will discharge the student loan debt. During those seven years, if you returned to school, the clock may restart. You should speak to a Trustee about the case law on this subject.

There is also a special rule that says in cases of hardship, you can apply to have the student loan debt discharged after just five years. So what constitutes hardship?

There are two conditions that need to be met for the hardship rule to apply:

  • You need to have acted in “good faith” with respect to the student loans, and
  • You have, and will continue to experience financial difficulty which makes you unable to pay the student loans.

Acting in good faith means the money was used to obtain an education; that you made an effort to repay the loan; and/or you took advantage of any interest relief offered by the lenders.

Let’s say you have proved good faith. Now you have to show that you will suffer hardship if you paid your student debt. This is a matter of the Court reviewing your monthly income and expense statement to see if you have resources to meet the debt obligation. The court will look at a variety of items including whether you are trying hard to find work.

There are a few grey areas when it comes to discharging student loans. It is in your best interest to work with a bankruptcy Trustee and let them help you determine how your debt will be treated.

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)