Loans Expert

Kitchener-Waterloo — If you have a large student loan debt that is more than seven years old, you can now have it forgiven by a bankruptcy, according to personal insolvency professionals at PricewaterhouseCoopers (PwC).

Under amended Canadian federal bankruptcy laws which came into effect on July 7, 2008, if your student loans are older than seven years, they can now be forgiven or compromised by filing a bankruptcy or consumer proposal with a licensed trustee in bankruptcy. As well, there are changes to the law which may see your student loans forgiven after five years if you are experiencing significant financial hardship.

“The change to the law will help those who have been struggling for years with unmanageable student loan debt to get a fresh start” said Wesley Cowan a Kitchener-Waterloo-based bankruptcy trustee at PwC.

In addition, there are changes coming (but not yet in force) where if you owe in excess of $200,000 in back taxes, with tax making up the majority of your debts, you will not be eligible for an automatic discharge in personal bankruptcy proceedings and will face a court hearing before you are discharged from bankruptcy. According to Industry Canada over 1/3 of bankruptcies in 2006 had some amount of tax debt.

Individuals with student loan or income tax debt are encouraged to seek professional advice about their financial situation before the new laws come into effect. A trustee in bankruptcy can explain all the options including alternatives to bankruptcy such as a proposal to creditors, which can include tax and student loan debts.

There are other amendments to the federal Bankruptcy & Insolvency Act that are expected to come into force in the fall of 2008.

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Tags: Loans, Student Loans