Student Loans After a Consumer Proposal – The Lenders Are Getting Aggressive

Over the last two weeks I have had a higher than usual number of people coming into my office who finished their consumer proposal in 2008, and now they are getting phone calls from collection agents for their student loans.

Under the old rules, if their student loan was less than 10 years old at the time they filed their consumer proposal (7 years under the new rules), the student loan was not automatically discharged in the consumer proposal (or bankruptcy). The lenders don’t go after you while the proposal is running (they can’t), but as soon as it’s finished, they resume their collection activities.

These people had other debts, and since a bankruptcy would not have discharged their student loans, a consumer proposal made sense at the time; it allowed them to deal with their other debts, and “buy time”. If their job situation has improved, they may now be able to deal with their student loans.

Here was my advice to these people:

Start by asking the collection agent to send you written proof of what you owe. Explain to them that you had filed a consumer proposal and thought that you had cleared your debts. You want something in writing proving what you owe. Once you have this, your first option is to try to make a deal with the collection agency. If there is any way that you can raise some cash, then offer to pay a lump sum of what you can afford. For example, if you owe $5,000 and can borrow $2,500 from family and friends, then offer that as a settlement. A settlement often works, because many collection agents work on commission, and often they would rather get their pay from a lump sum now than have to wait by collecting small amounts monthly.

Your other option is to file for personal bankruptcy. If more than seven years has now passed since you ceased to be a student, your student loans will be automatically discharged when you file bankruptcy.

Of course bankruptcy is the last resort, so before you decide to go bankrupt you will want to discuss your situation with a trustee; a list of trustees that offer no-charge initial consultations can be found on the bankruptcy Canada web site.

Published on Tuesday, August 12th, 2008