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Relief And Repayment Options: Can Bankruptcy or Consumer Proposal Help?

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    The average Canadian student loan debt is about $27,000, depending on the province and the school. Statistics show that it takes an average of 14 years for students to pay off their debt completely after leaving school. Obviously, this has a huge financial impact. Post-secondary education is getting more expensive and many entry level jobs don’t pay new graduates enough money to pay down their debts, afford monthly expenses and have any savings left over. This means that people are having to put off purchasing items like automobiles or houses. This situation also leads to people ending up in financial trouble due to borrowing money to make ends meet. It’s no wonder that many people are looking for student loan debt relief.

    How to Deal with Student Loan Debt

    Those who are dealing with significant student loan debt often end up unable to afford their living expenses. When a significant amount your income is tied up in making payments on student loans, it’s hard to pay for everything else that new graduates need. This, unfortunately, can cause many people to end up in significant financial trouble. It’s not uncommon for someone who owes a lot in student loans to end up with other debts as well, such as credit card debt, since they need to borrow money to make ends meet.

    People in these situations often end up thinking about consumer proposals and student debt, bankruptcy and student debt, and what they can do to improve their financial situation.

    If you are having debt trouble, you may want to consider bankruptcy and consumer proposal Canada. While these may be options, know that each financial situation is unique, so it’s important to understand these processes first and learn how they may affect your specific circumstance.

    Should You Consider a Consumer Proposal if You Have Student Debt?

    When it comes to consumer proposals and student debt, there are many factors to keep in mind.

    • A consumer proposal is a legal process that is designed to help people who are struggling with debt. In a proposal, an offer is made to a person’s unsecured creditors. Typically, this offer is for a portion of the outstanding debt. 
    • If the creditors that are owned the majority of the debt accept the proposal, then all are bound by its terms.

    Student loans are considered unsecured debt, since they are not backed by an asset (mortgages and automobile loans, for example, are considered secured debts). However, this does not automatically mean that including student loans and consumer proposals in Canada is possible. Whether student loan debt can be included in a consumer proposal depends on how long you have been out of school.

    • If you have been completely out of school for at least seven years, your student loans can be included in the consumer proposal. 
    • However, if you have been out of school for less than seven years, filing a consumer proposal and student debt in Canada may not be the right choice for you, since these debts may not be eliminated by the proposal. 
    • If you have other debts (such as credit card debt), it still could make sense to consider a proposal even if your student debt is less than seven years old. 
      • As mentioned, many people who struggle with student loans find themselves needing to borrow money or use credit to make ends meet, since so much of their income goes towards student loan payments. 
      • This means, even if you’re not able to eliminate your student loans in a consumer proposal, it could still make sense to file. 

    Bankruptcy Vs. Consumer Proposals

    When it comes to consumer proposals or bankruptcy and student loans, it’s important to know that there are many similarities between these processes, but that there are also key differences

    • Similarities between bankruptcy and consumer proposals
    • Bankruptcy and consumer proposal are both legal processes that are designed to provide debt relief. 
    • Both processes are administered by Licensed Insolvency Trustees and both come with legal protection from creditors. 
    • With both consumer proposal and bankruptcy, once you file, your creditors are not able to take action against you to collect on their debts. In fact, they are not able to contact you at all. All communication is handled through the trustee. 
    • The seven-year period mentioned above is applicable when it comes to bankruptcy and student debt, just as it applies to consumer proposals and student debt.

    However, there are important differences between the two processes.

    • Differences between bankruptcy and consumer proposal
      • With a consumer proposal (including cases involving a consumer proposal and student debt in Canada), an offer is made to your creditors to repay a portion of the debt. If this offer is accepted by the creditors that are owed the majority of the debt, you will be responsible for making monthly payments as outlined in the proposal terms.
      • With a bankruptcy, your debts are eliminated, and you are allowed to start your financial life fresh. You may have to make monthly payments, depending on your income, and you may lose some assets, depending on how much you own.
      • With a proposal, your monthly payments do not change no matter how much you earn, and you can pay off the proposal more quickly if your financial situation allows. With a bankruptcy, if you earn more income, you may need to make larger payments to your creditors.

    Speaking with a Licensed Insolvency Trustee can help you understand the details of these two legal processes so you can decide if either is right for you.

    The Advantages of Using Consumer Proposals to Deal with Student Debt

    There are numerous factors to consider in regards to consumer proposals and student debt as well as bankruptcy and student loans.

    If you file for bankruptcy, this fact will be noted on your credit report for at least six years after the date you're discharged, if it is your first bankruptcy. A consumer proposal remains noted for three years after you've paid off all of the debts included in the proposal. You also do not risk losing any of your assets when you file a consumer proposal Canada.

    A major potential advantage when it comes to student loans and consumer proposals in Canada (which is different from bankruptcy and student loans) is that, once the proposal is accepted, the terms do not change. You are responsible for making the same monthly payment each month, no matter how much you earn. With a bankruptcy, you may be required to make larger payments to your creditors if your earnings increase.

    Recent graduates often earn frequent salary increases, either due to raises or getting new jobs. When it comes to bankruptcy and student debt, these increases could mean you’ll have to pay more to your creditors. This isn’t the case with a consumer proposal Canada. In fact, if your income increases, you can even decide to pay off your proposal early without penalty.

    Does a Consumer Proposal Cover Student Loans?

    When it comes to student loans and consumer proposals in Canada, you must have been out of school for at least seven years to have your student loan debt eliminated in a consumer proposal. If it has been less than seven years, your student loans may not be included, even if your other creditors accept the proposal.

    If you have been out of school for less than seven years, the student loan lender may receive a prorated share of the proposal payments. However, while this may reduce your student loan debt, the proposal will not eliminate your student loans. This means the lender can still come after you for the rest of the money. A student loan lender has to specifically agree to the discharge of the debt as a term of the proposal if you have been out of school for less than seven years.

    As you can see, the situation involving consumer proposals and student debt can be complex. A Licensed Insolvency Trustee can help you understand the situation during your consultation. 

    Can I Get a Student Loan If I am Going Through a Consumer Proposal?

    There is nothing that specifically prevents someone from applying for a student loan if they are going through a consumer proposal, just as there is nothing that stops someone from filing for bankruptcy and student loans. However, the lender will know that you are going through a consumer proposal and will likely do research into your financial situation to determine if they should give you a loan.

    This includes confirming that you are current with your proposal payments, that you have a strong overall payment history, and that there are no student loans included in your current proposal.

    When am I Eligible to File a Consumer Proposal for My Student Debt in Canada?

    You can file a consumer proposal at any time, if you wish. However, when it comes to consumer proposal and student debt in Canada, you need to have been out of school for at least seven years to have your student debt eliminated by the proposal.

    If you have other debts (such as credit card debt or a line of credit) you can file a consumer proposal that includes these debts, even if your student loans will not be eliminated by the process. 

    What Happens to My Student Debt After a Consumer Proposal?

    If your student loan debt is eligible to be included in a consumer proposal (meaning you have been out of school completely for at least seven years) this debt will be eliminated once you make the payments as outlined in the proposal. The maximum length of a consumer proposal Canada is 60 months (five years) but you can pay off your proposal earlier if it is financially possible for you.

    When it comes to student loans and consumer proposals in Canada, these loans are treated like any other unsecured debt as long as you have been out of school for at least seven years. When you have made all the payments as outlined in the proposal terms, you will be discharged and free to start rebuilding your financial life free of student loans and other debts. 

    Does a Consumer Proposal Impact My Ability to Get a Student Loan in The Future?

    When you file a consumer proposal, this is noted on your credit report. Some student loan lenders will take this fact into account during the loan approval process. However, if you are able to prove that you are up-to-date with your proposal payments and that you are able to repay the student loan when it is due, you should still be able to get a loan.

    Should You Consider Bankruptcy if You Have Student Debt?

    Filing for bankruptcy is an option for someone who can’t meet their financial commitments. Licensed Insolvency Trustees are responsible for administering the bankruptcy Canada process. If you are having trouble paying your bills as they become due, meeting with a trustee can help you understand your options and make the right choice for your financial future.

    When it comes to bankruptcy and student debt loans, it’s important to know that these debts will only be eliminated by a bankruptcy if you have been out of school completely for at least seven years. If this is your situation, upon declaring bankruptcy student loans will be eliminated along with your other unsecured debts. However, if you have been out of school for less time, you may not be in a position where student loan bankruptcy discharge is possible for you.

    As mentioned, if you declare bankruptcy student loans may not be eliminated if you have been out of school for less than seven years. However, there is a “hardship provision” that applies to bankruptcy and student debt loans. People who file for bankruptcy and who have been out of school for only five or more years (yet not the standard seven years) can make an application to the court for early student loan bankruptcy discharge.

    The Advantages of Using Bankruptcy to Deal with Student Debt

    For those considering the implications of student loans and bankruptcy in Canada, it is important to know that there are both positives and potential downsides to the process. 

    In a bankruptcy, a person’s unsecured debts are eliminated. Unsecured debts are debts that are not tied to an asset (examples include credit card debt, lines of credit, tax debt, etc.). While student debt is considered unsecured debt, including student loans and bankruptcy in Canada is usually only possible if you have been out of school for seven years or more. Otherwise, your student loans may not be eliminated through the bankruptcy process.

    • An advantage to filing bankruptcy is that, upon declaring bankruptcy student loans and other unsecured debts are eliminated (assuming you have been out of school long enough). You will then be given the opportunity to start your financial life over. 
      • This means you won’t have to deal with collection calls, and you will get a chance to rebuild your credit and live your life without crushing debt. 
    • You also receive legal protection once you have filed for bankruptcy, so none of your creditors can take steps to collect the debts. This puts an end to calls from creditors and collection agents.

    The Disadvantages of Using Bankruptcy to Deal with Student Loan Debt

    When it comes to bankruptcy and student loans Canada, making the decision to file could be the right choice for you. However, there are potential downsides to filing for bankruptcy.

    • One downside of student loans and bankruptcy in Canada is that your credit score will be negatively affected when you file. 
      • Your bankruptcy will be noted on your credit report and this note will remain for at least six years after you are discharged. 
      • While this note can make it more difficult to get a loan, it is worth mentioning that many people who struggle with debt have already negatively impacted their credit by missing payments or borrowing more than they can afford to repay. 
      • If you file for bankruptcy, your credit will be affected, but your unsecured loans will also be eliminated. This means it could be worth it to you, depending on your situation.
    • Another potential downside is that you may lose some assets if you file for bankruptcy. 
      • Each province and territory in Canada allows people who declare bankruptcy to keep some assets. However, you may lose some, depending on what you own and the value of these assets. 
      • A Licensed Insolvency Trustee will let you know what will happen to your assets before you file and ensure that you are able to keep any exempt assets.
    • Depending on how much you earn, you may be responsible for making surplus income payments when you file for bankruptcy.
      • There is a limit to how much you are able to earn (depending on your family size) while you are bankrupt. If you earn more than this amount, you will be required to make surplus income payments to the trustee and they will distribute these payments to your creditors. 

    Does Bankruptcy Cover Student Loans?

    If you are considering bankruptcy and student debt is an issue, know that these debts can only be eliminated through the bankruptcy process if you have been out of school for at least seven years. When it comes to bankruptcy and student debt loans, you will need to make an application to the court if you have not been out of school for seven years. This application can only be filed if it has been at least five years since you ceased to be a student. 

    However, an application for early student loan bankruptcy discharge will only be accepted if the court believes: 

    • You acted in good faith to repay your student loans
    • You have experienced, and will continue to experience, financial difficulties that prevent you from repaying your student loans

    Upon declaring bankruptcy student loans can be eliminated (subject to the “seven-year rule”) along with other unsecured debts. 

    As mentioned, a lot of people who graduate from college and universities with significant student loans have trouble repaying these loans. This problem can be compounded if the person spends a significant portion of their income paying their student loans, because this means they won’t have much left over to pay their bills. In these situations, it’s not uncommon for someone to take on credit card debt or other consumer debt to make ends meet. The result is a situation where a person can’t keep up with their payments.

    If you are in this situation, even if your student loan debt cannot be included in a bankruptcy, it still could make sense to file if you have other significant debt.

    Can I Declare Bankruptcy on Student Loans in Canada?

    If you have made the decision to declare bankruptcy student loans may be eliminated by the process, depending on how long you have been out of school. When it comes to student loans and bankruptcy, your student debt will included if you have ceased to be a student for at least seven years.

    If you have been out of school for five years (but not seven), you can apply to have your loans included in the bankruptcy process through the “hardship provision.” This provision in place for those who have made efforts to repay their student loans, but have been unable to do so due to financial difficulties. 

    Can I Get a Student Loan If I Have Gone or am Going Through Bankruptcy?

    When it comes to bankruptcy and student loans Canada, there is no specific law or rule that prevents a person from getting a student loan if they have filed for bankruptcy. If you are looking for financial help to afford classes at universities or colleges, you can still apply for a loan. However, the lender will see that you have filed for bankruptcy and may request a letter from the Licensed Insolvency Trustee that states that the loan will not go directly to your creditors.

    How to File For Bankruptcy

    To file for bankruptcy Canada, you must meet with a Licensed Insolvency Trustee. The process of filing bankruptcy and student loans Canada can only be administered by a trustee. It is not possible to file for bankruptcy yourself.

    Most trustees offer a free consultation where they will review your financial situation and give you details on the options available. If you decide to file for bankruptcy and student loans are your main concern, the trustee will tell you if they can be included in the process. 

    If you wish to proceed, the trustee will complete the required forms and inform your creditors. From this point on, the trustee will be responsible for all communication with your creditors. 

    Alternatives to Filing for Bankruptcy

    There are options other than filing for bankruptcy Canada for those who are struggling with debt. Student loan bankruptcy discharge is not the only available option for most people.

    If you are thinking of bankruptcy and student loans are one of your biggest financial issues, schedule a meeting with a Licensed Insolvency Trustee. These professionals are the only people who can administer the bankruptcy process in Canada. 

    A trustee will also give you information on all the options available to you. It is worth considering all of your options (other than just bankruptcy and student debt loans) when you are having financial difficulties. 

    • One potential option is filing a consumer proposal instead of a bankruptcy. This process has similar conditions to bankruptcy and student debt (you must have left school at least seven years ago, for instance) but it involves making an offer to your creditors that will see you repay a portion of the debt you owe.
      • When you meet with a trustee, they will determine what a fair offer to your creditors will be. This offer is then sent to your creditors who will vote on it.
      • If the creditors that are owed the majority of the debt agree to the terms of the proposal, all the creditors will be bound by the proposal’s terms. 
      • If your proposal is accepted, you will be responsible for making monthly payments to the trustee who will distribute them to your creditors. These payments do not change even if your income increases.
      • You are able to pay off the proposal more quickly without penalty (if you are financially able to do so). 
      • You receive the same legal protections from your creditors under a consumer proposal as you would with a bankruptcy.
      • Many people who start the process considering bankruptcy and student loans Canada ultimately make the decision to file a consumer proposal instead. However, the options available – and which option is the best choice – will depend on your particular financial situation. 
    • The federal government’s Repayment Assistance Plan (RAP) may be an option for those considering bankruptcy and student loans Canada. This program is available to people who are having difficulty paying or who are unable to make their student loan payments. 
      • Depending on your income, you may qualify for assistance from the Government of Canada and/or your provincial or territorial government. 
      • Contact the National Student Loans Service Centre (NSLSC) or your provincial or territorial loan provider for more information.

    What Happens to My Student Debt After a Filing for Bankruptcy?

    When you declare bankruptcy student loans that are older than seven years are included in the process. This means they can be eliminated by filing for bankruptcy. 

    For those who are considering bankruptcy and student loans are older than seven years (i.e. if you have been out of school for at least seven years), these debts will be eliminated when you are discharged from bankruptcy. If you left school five years ago, but it has not yet been seven years, you can apply to have your student loans included in the bankruptcy under the hardship provision. 

    Does Bankruptcy Impact My Ability to Get a Student Loan in The Future?

    Universities and colleges are expensive, so student loans are often necessary for people to afford school. When it comes to student loans and bankruptcy in Canada, there is nothing in particular that stops someone from getting a student loan simply because they filed for bankruptcy. 

    If you decide to file for bankruptcy and student loans are something you need to get in the future, you can still apply. The lender may require a letter from the Licensed Insolvency Trustee that confirms that the funds from the student loan will not immediately be given to your creditors.