Student loans under the Bankruptcy & Insolvency Act.

• Author: Hoyes, Doug J.

The Bankruptcy & Insolvency Act of Canada (the Act or BIA) eliminates most unsecured debts like credit card debt, bank loans, lines of credit and payday loans. There are, however, certain debts that are excluded under the Act. Student debts are often confusing because some debts can be automatically discharged if you file for bankruptcy while others cannot.

The first distinction to consider is whether your student loans are government guaranteed or private loans. If you have a government loan, for example through the Canada Student Loans Act, then your loans are considered government guaranteed. If you went to the bank to take out a bank loan, set up a line of credit, or get a credit card to use while in school, these are considered private loans.

Unsecured private loans, even though you used the money to attend school, are considered regular unsecured debts. These are automatically discharged if you file and complete your bankruptcy.

Government guaranteed student loans fall under special provisions in the BIA for student debt that mandate that student loans cannot be automatically discharged in a bankruptcy or consumer proposal unless you have ceased to be a student for at least seven years. The relevant laws are under Section 178 1(g) of the BIA and state that an order of discharge does not release a bankrupt from:

(g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred: (i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or (ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student. Similar rules apply to loans made under the Apprentice Loans Act.

The key term here is 'ceased to be a student'. That means full or part-time at any time during the past seven years. If you return to school for even one term or one month, the clock starts ticking again.

If your student...