Can You Declare Bankruptcy On Student Loans In Canada
As of July 2008, under the Bankruptcy and Insolvency Act, there are two conditions under which Student Loans may be discharged by bankruptcy in Ontario: The Seven-Year Rule and the Hardship Provision. If you are considering bankruptcy and have school debts and think the above two conditions might apply to you, you will need to discuss with your trustee.
The Forty Percent Chance
While there is no realistic way to predict your chances of discharging student loan debt via bankruptcy without a detailed assessment of your finances, one 2011 study found that your chances may be better than you might think. Forty percent of the debtors studied were granted student loan relief, and the three characteristics that affected those discharges were unemployment, low annual income, and medical problems.
So the forty percent finding was drawn from a group that was in very straitened circumstances, which helps explain their success, but it does bolster the point that discharging student loan debt is by no means impossible.
What Happens If I Have More Debt Than Just My Student Loans
If you are facing debt outside of your student loans, you can consider a bankruptcy or consumer proposal. These debt relief programs wont absolve you of your loans but will allow you to pause your payments until you have completed your program. The idea is that once your consumer proposal or bankruptcy is completed, you will have the tools and be in a better standing to repay your student loans.
When you book a consultation with David Sklar & Associates, you can have peace of mind knowing that your trustee will work with you and consider your student loans when helping you weigh your debt relief options.
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Consider Hiring A Lawyer
While you dont technically have to go through a lawyer when filing bankruptcy on student loans, bankruptcy can be an incredibly complex process. It requires determining which type of bankruptcy youll file for and submitting an extra lawsuit, called an adversary proceeding . Going through it all alone could mean extra time, incorrect filings and, possibly, a lost case.
However, one thing to consider is that hiring a student loan lawyer could actually hurt your chances for discharging your student loans in bankruptcy, according to Fuller. Thats because some judges may feel that if you can afford fees for an attorney, then you can afford to be paying back something on your loans, which would disqualify you from experiencing undue hardship.
If you dont know a lawyer, dont worry. You can find one through the American Bar Association. You might be eligible for a lawyer at no cost to you through the Legal Services Corporation, an independent nonprofit created by Congress that offers financial support for civil legal aid to low-income Americans. Just make sure you pick a lawyer that specializes in bankruptcy and has very good reviews.
If you opt to handle your case yourself, a recent study by the American Bankruptcy Journal noted that debtors without a lawyer were just as likely to have their student loans discharged by a bankruptcy judge as those who worked with an attorney.
Student Loans And Bankruptcy
Student loans are common among Canadians who received post-secondary education, but these loans can quickly add up after graduation. In some cases, especially when already facing overwhelming debts, you may need to consider other options to help you manage your debts.There are federally licensed debt solutions like Bankruptcy and Consumer Proposals that can help with student loans. The licensed insolvency trustees at David Sklar & Associates can help explore all of your options and get you back on track with your finances.
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Explain The Proposed Law To Allow Bankruptcy For Student Loans
If enacted, the bipartisan FRESH START through Bankruptcy Act would change the current law to remove the lifetime ban on student loan discharge in bankruptcy and replace it with a 10-year ban.
Under the proposed law, if borrowers can show that paying their student loans caused undue hardship during the first 10 years, then they can get it discharged after that 10-year period is over without having to prove that it would be an undue hardship from that point forward.
This change would only apply to federal student loans, not private student loans. Any discharge of private student loans, regardless of the repayment timeline, would still require proving undue hardship.
To help shoulder some of the financial cost to the federal government of this proposed change, the bill also includes an accountability measure for colleges and universities. The schools would have to reimburse the government for a portion of the discharged student loan amount depending on the cohort default rate and repayment rate of the institution at the time the first loan payment comes due.
When Bankruptcy Doesnt Discharge Student Loans
Even if bankruptcy cannot discharge your student loans, it may still be the right option for you.
People struggling with student loan debt often have additional outstanding debts ranging from credit card debt to unpaid mortgages. Bankruptcy can discharge these other debts, freeing up more funds to pay down your student loans.
If you borrow money, you have a moral and legal obligation to pay that money back. Students and parents should take the time to do cost-benefit analysis and long-range planning before accepting student debt of any amount.
But remember that bankruptcy laws were written to give people a second chance. If your debt load is overwhelming and you dont see a reasonable way out, bankruptcy is a legitimate debt-relief option. Even if you dont meet the criteria for student loan discharge, it might be possible to discharge other debts, freeing up resources to allow you to pay the student loans.
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You Should Not File Because
Bankruptcy is the most damaging event your credit can sustain, and as noted above remains known to potential lenders for ten years. If youre a college student in your twenties filing for bankruptcy, that means that well into your thirties youll have difficulty obtaining feasible loan terms for purchases like a house or even a car, although you may need transportation in order to work or want a house to start a family. If theres any hope of financial survival short of bankruptcy, try to hang on until your situation improves.
Defaulting On Student Loans
How many parents have student loans?
The Department of Education said that 3.3 million borrowers had $74.5 billion in Parent Plus loans in 2016 to pay for their childrens education. Another study by the University of Southern California said the average parent borrows $21,000, but that parents with incomes higher than $120,000 borrow an average of $30,000.
The Consumer Financial Protection bureau said that 2.8 million people 60-and-over were paying on student loans in 2017. That is four times the number who borrowed in 2007. Even worse, the Government Accounting Office says that 37% of student loan borrowers age-65 and over are in default.
If youre considering bankruptcy, your loans are probably already in default, meaning you havent made a payment in more than 270 days . This is more common than you may think. The national default level on student loan repayment is approximately 10%, meaning that 4.4 million borrowers are in default on Americas $1.4 trillion student loan problem.
The Department of Education said that the default rate was falling in 2016, but that is misleading according to many experts because nearly 6.5 million borrowers were in deferment or forbearance, two forms of delay before a borrower goes into default. Austin said his research indicates that 40% of student loan borrowers are either delinquent or in default .
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Chapter 13 And Student Loans
A case under chapter 13 is often called reorganization. In a chapter 13 case, you submit a plan to repay your creditors over time, usually from future income. These plans allow you to get caught up on mortgages or car loans and other secured debts. If you cannot discharge your student loans based on undue hardship in either a chapter 7 or chapter 13 bankruptcy, there are still certain advantages to filing a chapter 13 bankruptcy. One advantage is that your chapter 13 plan, not your loan holder will determine the size of your student loan payments. You will make these court-determined payments while you are in the Chapter 13 plan, usually for three to five years. You will still owe the remainder of your student loans when you come out of bankruptcy, but you can try at this point to discharge the remainder based on undue hardship. While you are repaying through the bankruptcy court, there will be no collection actions taken against you. You may have other options, depending on how judges decide these cases in your judicial district. For example, some judges allow student loan borrowers to give priority to their student loans during the Chapter 13 plan.
Student Loans A Lot Like The Subprime Mortgage Debacle Watchdog Says
But he says the rules are still too restrictive. Lawless researched the issue with a group of attorneys and former judges for the American Bankruptcy Institute, a professional organization. They’re recommending that Congress rewrite the rules on student loans in bankruptcy. Under the proposal, Lawless says, “after seven years from when the loans became due, they would be treated pretty much like any other debt in a bankruptcy case.”
There is at least some support for that in Congress. Part of the obstacle now is that the current rules often require paying your lawyer more money to attempt to get student debt forgiven.
Lawless says it costs on average about $1,200 to file a typical Chapter 7 bankruptcy case. Bankruptcy attorneys say it can cost thousands of dollars more to pay your lawyer to jump through the extra hoops related to student loan debt, unless you find one who will do that for a reduced rate.
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What You Should Know If You Cannot Pay Your Student Loans
It is very common for individuals graduating from university or community college to be burdened by significant debt. Often, this debt is from student loans. In some instances, students may also carry other types of unsecured consumer debt primarily credit card debt.
This article will address the key issues facing people who owe a significant amount of money because of student loans.
This is the Second Article in a Series of Four Dealing with Student Bankruptcy.To learn more about student loan debt and waiting periods, read on. You can also skip to another section by clicking one of the links below:
Proving Undue Hardship In Student Loan Bankruptcy
For now, the burden is on borrowers to establish their qualifications for undue hardship that satisfy the court theyre in front of. While it might seem easy to prove financial dire straits, that isnt always the case, according to Michael Fuller, a bankruptcy attorney.
You have to be in a somewhat extreme situation, Fuller said. It is often people who are sick, people who are on disability or people who have an extreme financial situation that is not going to improve.
For instance, Fuller said he recently worked pro bono with a single mother of four kids who owed several hundred thousand dollars on student loans. While she was employed, the woman was unable to make payments on her loans. When filing bankruptcy on her student loans, Fuller was able to demonstrate the debt caused undue hardship for her and her dependents and had her outstanding loans discharged.
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Should You Wait To File Bankruptcy In Minnesota
Bankruptcy is a last option for many people. Before making a decision to file, most people will struggle with their rent or mortgage and other bills. Due to ongoing stress, mistakes will occur, such as paying a credit card bill instead of an electric bill or paying the monthly balance on a personal loan instead of their home owners association fee. They may even skip one or two mortgage payments to pay an unsecured debt.
People may also undertake second mortgages or withdraw from their retirement account to pay their unsecured debt. In these instances, people are avoiding the inevitable and, unfortunately, just making matters worse. Further, if youve missed a mortgage payment or car payment, then you may be looking at a foreclosure or repossession. This is especially true if youve missed multiple payments.
Other people decide to enter into consolidation loans with companies that promise to help them with their debt by negotiating with their lenders and paying a monthly payment. What these companies arent telling you is that they cant make every creditor agree to that payment and if you miss a payment, then youre still liable for that debt and liable to lawsuits and any judgments that are entered.
Debt Relief Options From Your Lender
Income based repayment
Most lenders offer the opportunity to make payments that are conducive to your income. Give your lender a call to find out exactly how much your payments will be based on your income.
In some cases, you may find that the payment amount may be higher, but it doesnt hurt to ask.
Public servant loan forgiveness
Public servants have the ability to have their loans forgiven after a certain number of years of service.
If youre a college student, you may see organizations like Teach for America around your campus recruiting graduates to volunteer as teachers in impoverished communities in exchange for student loan forgiveness.
Deferred payments/hardship plan
If youve lost your job or are unemployed, this may be an option for you. Your lender may make arrangements to either defer your payments to resume at a later date or lower your minimum payment, interest, and fees.
Reduced minimum monthly payment
If youre unable to cover the full amount of your monthly minimum payment, your lender may agree to reducing the payment. Though it may cost you more in the long run, it is a temporary way to relieve the financial strain.
Lower interest rate
Similar to the monthly payment, reducing your interest rate will also reduce that amount that you have to pay each month.
Remove past late fees
Lump sum settlement
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Would Bankruptcy Become An Attractive Way To Get Rid Of Student Loans
Declaring bankruptcy is not an ideal option to deal with student loans because it comes with substantial immediate and long-term consequences. The immediate consequence is that bankruptcy can result in the sale of property to pay off debts. The longer-term consequence is that, depending on the type, Chapter 7 or 13, bankruptcy stays on credit reports for seven to 10 years. The substantial negative mark on credit reports means it will be more difficult to obtain a credit card, auto loan and mortgage. When any form of credit is obtained, the interest rates are likely to be much higher with a bankruptcy on record.
Another solution to a large student loan debt is to enroll in an income-driven repayment plan, such as Revised Pay As You Earn. These plans limit the amount of the monthly payment on federal student loans to a percentage of your discretionary income, which is the difference between your income and 150% of the state poverty guideline, adjusted for family size.
After 20 years of repayment for undergraduate loans , the remaining balance is forgiven. If the new bill becomes law, borrowers in income-driven repayment plans will have a choice. They can either pursue bankruptcy after 10 years and suffer the consequences, or continue paying through loan forgiveness.
When To File An Adversary Proceeding: Chapter 7
If you choose to file for Chapter 7, you can file the adversary proceeding right after filing your bankruptcy case. If you’ve already gone through Chapter 7 bankruptcy and your case has been closed, you may still be able to file an adversary proceeding to get your student loans discharged. How much time you have to do so depends on where you live and the courts.
If your Chapter 7 case is already closed, you must first move to reopen your bankruptcy case. This is procedural and does not restart the bankruptcy or eliminate the discharge you may already have received for your debt.
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Never Report Bankruptcy Proceeding On Student Education Loans Try This Alternatively An Educatonal Loan Re
Never report bankruptcy proceeding on student education loans try this alternatively. An educatonal loan re-finance could possibly offer a better alternative to popular filing personal bankruptcy.
Paying student loan debt can you need to put a-strain on the financing, specifically if youre suffering from revenue reduction or else you has additional exceptional bills to repay. Processing case of bankruptcy on education loans may seem like one option but there are additional strategies to control your own degree obligations.
An educatonal loan re-finance could reduce your monthly payments while spending less on focus. This can possibly help stay away from the damaging credit score rating influences of declaring personal bankruptcy. If youre searching to secure small prices, multi-lender marketplace Credible can help. Compare individual loan providers to determine if this is the time to refinance, according to your loan sort, amount borrowed plus much more.
Here is a closer look within advantages and disadvantages of utilizing bankruptcy proceeding to eliminate student education loans.