Seven Years – What does 7 years mean for student loans and bankruptcy in Canada?
Section 178 1(g) of the Bankruptcy & Insolvency Act states that the following debts are NOT discharged when you declare bankruptcy in Canada:
(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.
In summary, government guaranteed student loans are only automatically discharged if you have “ceased to be a student” for more than seven years prior to when you declare bankruptcy.
What does “ceased to be a student” mean? In general, it means that once you leave school, you have ceased to be a student. For example, if you got a student loan in September 2000, and graduated in May, 2004, you ceased to be a student at the end of May, 2004. You would probably want to avoid filing bankruptcy prior to June, 2011 (seven years after you ceased to be a student). They key here is that it is not when you got the loan, but when you ceased to be a student that matters.
Let’s continue the example by assuming that you went back to schoold for a year, from September 2007 to April 2008. You therefore were a student, again, until April 2008, so you ceased to be a student in April, 2008. In that example your student loan would not be automatically discharged in a bankruptcy prior to May 2015.
A strict reading of the legislation indicates that it is ceasing to be a student that is the critical date.
However, to complicate this discussion, there was a court case in 2005 that addressed this issue (Re Ledoux, 2005 SKQB 75, 8 C.B.R. (5th) 225). In this case the bankrupt left school in 1989 (her education was funded in part by Canada student loans). She then returned to school between 1992 and 2000, but did not receive any student loans to return to school. She then went bankrupt in 2004.
The Bankruptcy Registrar (the judge) in this case decided that, for the purposes of the student loans, she ceased to be a student in 1989. That was the last year she was a student for which she received student loans. So, in her case, her student loans were discharged in the bankruptcy.
This case indicates that once you cease to be a student funded by government guaranteed student loans, the seven year period begins. If you return to school but don’t get any further student loans, the seven year period does not restart.
Obviously this is good news for any former students who return to school, and pay for it without government student loans.
A word of caution: This case is a case from Saskatchewan. Decisions of the Saskatchewan court are not necessarily binding in any other province. The courts will typically consider decisions of other courts, but they are not necessarily bound by them.
To conclude, if you were a student, and then returned to school, you should speak to a licensed bankruptcy trustee in your province to get advice on how to determine the exact end of study date before you make a decision to file bankruptcy.