Student Loan Debt & Bankruptcy
Many students graduate from school with more than just a world of opportunity in front of them. They’re also faced with the prospect of having to pay down a large amount of student loan debt. The Canadian Federation of Students estimates that the average student loan debt for students graduating in Canada is about $27,000. Even when you factor debt-free students into the equation, the number is $14,500. This is a lot of debt for anyone, especially for someone who is just starting out in the working world.
Unfortunately, for many students, it takes some time before they are able to get well-paying jobs in their field. According to Statistics Canada, the unemployment rate for young people is about 13.9 percent.
This is why, according to other statistics, it takes an average of 14 years for students to pay down their student loan debt. This is a large financial burden for students to carry.
Young people recently out of school have to deal with a lot of new expenses. Most of them will want to buy or rent a home. They’ll also need to purchase clothing for work and most likely a car as well. Plus, there are also the costs associated with weddings and children that many young people find themselves faced with. All of these expenses add up, especially when there is a large amount of student loan debt on top of it all.
Plus, once you graduate, you have to start paying interest on your student loans.
Discharging Student Loans in Bankruptcy
Due to the high amount of debt that many young people deal with, some consider filing for bankruptcy in order to help eliminate these debts. However, student loan debt can only be included in a bankruptcy if the person has been completely out of school for at least seven years. In some cases, you can apply to have this period reduced to five years in cases of hardship. However, this only applies if you acted in good faith to repay your student loans and if you “have experienced, and will continue to experience, financial difficulty” that will prevent you from repaying your loans.
The same situation applies to a consumer proposal. You must have been out of school for at least seven years before you can include student loan debt in a consumer proposal.
If it has been seven years, you can speak with a trustee who will explain the possible options for you that could help you reduce or eliminate your student loan debt. However, if it has not been seven years since you have left school, you still may benefit from the bankruptcy or consumer proposal processes.
As mentioned above, student loan debt is just one expense that recent graduates are faced with. Due to the high rate of youth unemployment and the high levels of student loan debt that many recent graduates have, many people end up in trouble with other types of debt. If you’re spending all of your paycheque on living expenses and repaying student loans, you may need to borrow money to handle a variety of situations and expenses. This is particularly true in the case of emergencies.
Many people do not have enough savings. This means that if their car breaks down or the roof of their home starts leaking, the may not have the money they need to make the necessary repairs. In the case of a job loss, this could mean taking on high levels of debt in order to cover expenses until a new job is found.
If student loan debt has caused you to take out large amounts of other debt that you are now having difficulty repaying, you may wish to speak with a licensed trustee in bankruptcy. While your student loan debt won’t be erased if it is less than seven years old, the trustee could still help you by explaining the options available that could allow you to eliminate or reduce your other debts. This will then free you up financially and put you in a position to repay your student loan debt and rebuild your financial life going forward.