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When you declare bankruptcy or file a consumer proposal, most—but not all—of your debts are discharged at the end of your bankruptcy/consumer proposal term. This means your debts are forgiven (in bankruptcy) or considered paid in full (in a consumer proposal), and you’re no longer liable for them. Your student loans, however, may be among those that are not discharged (others include alimony, child support, debts due to fraud, and court-imposed penalties).
How is this decided? In Canada, the seven-year rule applies to federal and/or provincial student loans: if you’ve been out of school for fewer than seven years, student loan debts survive both bankruptcy and consumer proposals. This means that you’ll have to continue paying them during and after your bankruptcy period.
But not all hope is lost.
There are several paths you can take to help you deal with student loan debt:
- In all provinces except Quebec, you can apply for repayment assistance. (Residents of Quebec may apply to that province under the deferred payment plan.)
- You can request a revision of terms from the National Student Loan Service Centre or the financial institution through which you arranged your student loan.
- If you are or have been bankrupt (or you’ve filed a consumer proposal), and you’ve been out of school for five years, you can apply under the “hardship provision” for an early discharge from your student loan debt.
- If you have other unsecured debts besides your student loans, you can still make a consumer proposal or file for bankruptcy. Lowering your overall debt load may make managing your student loans easier.