When are student loans included in bankruptcy?

Question from reader in Waterloo Region:  A friend of mine told me that student loans are not included in bankruptcy.  Another friend told me that they are included.  Who is right?

Answer:   That is a very common question, one I hear almost every day in meeting with people in our Kitchener bankruptcy offices. 

The general rule is that bankruptcy releases you from your obligation to repay your debts.   There are some exceptions to that general rule.  One of those exceptions is student loans if you have not been out of school for more than seven years on the day you file for bankruptcy.

There are a few points to clarify.

First, this applies only to government student loans.  It does not apply to a student line of credit offered through a bank.  That means that a student line of credit is included in bankruptcy.

Second, the starting point for measuring the seven year period is when you finished your studies.  It is not when you obtained the loan.  Sometimes, people restart that period by going back to school on a full-time or part-time basis.  If you are unsure of your end of study date, you can confirm it by contacting the National Student Loan Service Centre or the Ontario Ministry of Training, Colleges and Universities.

Third, even if your student loans are not included in bankruptcy, there may be good reason to talk to a professional about bankruptcy.  Maybe there are other debts like credit cards or income taxes.  Maybe a creditor is threatening legal action that would result in a garnishee on your wages.

If you are struggling to meet your financial obligations, it is important to understand the options that are available to you.  To review your options, you can call us at 310-PLAN or send us an e-mail. 

We will go over some more details about bankruptcy, but we will also review other alternatives like consumer proposals.  A consumer proposal is often a good choice for people who have the ability to repay a portion of their debts, allowing them to avoid some of the negative consequences of bankruptcy.