The Release of Student Loans on Discharge from Bankruptcy

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As discussed in a previous post, on January 20, 2022, the Court of Appeal granted leave to appeal to consider the interpretation of section 178(1)(g)(ii) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”). Pursuant to section 178(1)(g)(ii), a bankrupt is not released from student loan debts on discharge when the bankruptcy occurs within seven years after the date the bankrupt ceased to be a full or part time student.

Whereas some Canadian provinces have adopted a “multiple date” approach in which there can be different dates on which a bankrupt ceased to be a student that apply to different loans, in other provinces, including British Columbia, courts have adopted a “single date” approach in which a bankrupt will remain responsible for all student loans, whenever advanced, if the bankrupt was a student within the seven-year period before bankruptcy.

The Court of Appeal has reaffirmed the “single date” approach in British Columbia, meaning that the seven-year period in section 178(1)(g)(ii) runs from the latest date the bankrupt ceased to be a full or part time student, irrespective of whether the student loans financed the studies associated with the latest date a bankrupt ceased to be a student. The Court held that the interpretation is correct given the unambiguous language of section 178(1)(g)(ii), and noted that the interpretation prohibits “opportunistic bankruptcies” in which a student makes an assignment in bankruptcy without having tried to capitalize on the student’s education.

Despite this interpretation, bankrupts with onerous student loan debt can obtain relief in certain circumstances. The Court referred to section 178(1.1) of the BIA, which allows for an application to the court to have student loan debt discharged five years after having ceased to be a full or part time student when the bankrupt has acted in good faith and will continue to be unable to pay the debt.

Bankruptcy and Insolvency – Vancouver Lawyers

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