Student loan debt in Canada is treated differently from other unsecured debt in insolvency proceedings. Under Section 178(1)(g) of the Bankruptcy and Insolvency Act, government-issued student loans are not automatically discharged in bankruptcy or a consumer proposal unless you meet the 7-year rule. This guide explains how the rule works, what the hardship exception is, and what your options are if you're struggling with student loan debt.
Section 178(1)(g) of the BIA provides that government student loans are not released by a discharge in bankruptcy unless the bankruptcy occurs after the date that is seven years after the day the bankrupt ceased to be a full or part-time student under a prescribed student loan program.
This applies to:
Private student loans (from banks or other private lenders) are treated as regular unsecured debt and can be included in insolvency at any time.
The 7-year period is counted from the date you ceased to be a student — not the date the loan was taken out. If you:
If you have both student loans and other unsecured debt, you can still file insolvency before the 7 years — your other debts will be discharged, but the student loan(s) will survive. This is sometimes still worth doing if the total non-student-loan debt is substantial.
There is an earlier discharge available under Section 178(1.1) of the BIA — the hardship provision. If it has been at least 5 years since you ceased to be a student (but less than 7), you can apply to court for a discharge of student loans on the grounds of financial hardship.
To succeed on a hardship application, you must show:
Courts have interpreted "good faith" broadly — it includes having tried to repay, having participated in repayment assistance programs, and not having recklessly borrowed. The court will look at your overall financial picture: income, expenses, dependants, and prospects.
Before considering insolvency, explore government assistance programs for student loans:
The federal Repayment Assistance Plan allows borrowers experiencing financial hardship to reduce or temporarily suspend their Canada Student Loan payments. Payments are capped based on income — at very low incomes, you may qualify for $0 monthly payments. You apply every 6 months. After 10 years of being on RAP, the government pays the remaining loan balance.
Many provinces have their own repayment assistance or interest relief programs for provincial student loans. Contact your provincial student loan authority to ask about current programs.
Federal student loan default (no payment for 270+ days) triggers:
The CRA does not need a court judgment to intercept tax refunds — this happens automatically once a student loan is in collections through the federal government.
If you have student loan debt plus other unsecured debt:
Do not assume student loans cannot be addressed. A Licensed Insolvency Trustee can assess your specific timeline and advise on the best approach.
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