Declaring Bankruptcy and Student Loans

| 6/9/2022

Unfortunately, student loans are something that many people have to deal with, and they can keep you in debt for several years. If you’ve recently filed for bankruptcy, you may be left wondering what happens to the student loans you have yet to pay off. The laws vary depending on where you live, so we’re here to offer some clarity on the proceedings in Canada.

If you require support, consult with a Licensed Insolvency Trustee at Crowe MacKay & Company to review the best debt solution in Vancouver for you.

The seven-year rule and student loans

In Canada, a regular student loan can be eliminated in the case of personal bankruptcy if you haven’t been a student at any point in the past seven years. This is in keeping with Section 178(1) of the Bankruptcy & Insolvency Act.

What if the student loan is less than seven-years?

After declaring bankruptcy, your student debt won’t be absolved if you don’t meet the criteria for the seven-year rule, but there are options in place that make paying back these loans more manageable. During bankruptcy, Canadians are protected by the Bankruptcy & Insolvency Act. While interest continues to accrue, student loan lenders can’t collect from you during this time. The terms of your loan can then be renegotiated in order to get a temporary reduction in payments or an extension of your payment period of up to 14.5 years. Both of these options result in an increased build-up of interest but can give you the time necessary to get back on your feet. You can also apply for hardship reduction, which, if it’s granted, will decrease interest costs for 10 years and may drop the amount owed after that period.

Learn more about student loans and declaring bankruptcy


This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.

If you require corporate or personal Insolvency services, Crowe MacKay & Company provides custom solutions for clients, allowing them to live debt-free.

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