An interesting development, and one that might be important for former students out there…
Under the Bankruptcy and Insolvency Act (BIA) Section 178(1) (g), a proposal or bankruptcy does not release a person from their Canada Student Loans. However, there are qualifications to that rule that can enable a person to speed up that process.
In the decision of Mr. Justice Wilton-Siegel, a debtor applied to have his student debt incorporated into his proposal.
This debtor had dropped out of university, because he had a medical issue. He had a student loan, but he had never completed school, and is currently working at a Canadian Tire parts department. It is reasonable to infer that due to his lack of education, and his health issues, he will continue to have financial problems to the point that he will not be able to pay back his student loans.
This debtor was filing for a proposal, in which the Crown had raised no objection. The Registrar in Bankruptcy had previously ruled that this decision was beyond her jurisdiction, and therefore she could not allow the proposal to continue even though there was no objection from the Attorney General on behalf of the Ministry of Training, Colleges and Universities, or the Minister of National Revenue.
The Judge ruled that since 66(1) and 66.4 of the BIA allows for act to apply to proposals in its entirety with such modifications as required.
Therefore, while the student loans were not explicitly allowed for in the proposal, the Master believed that there was a violation of 66.28(2.1). However, the Judge ruled, in accordance with other precedent from other provinces, that since the opportunity under 178(1.1) for the court to release a debtor from student loans requires court approval, the creditors are protected.
Therefore, in order to encourage the filing of proposals and to ensure uniformity, proposal applicants will be afforded this same opportunity. Proposal applicants may be able to incorporate their student loans into their payback schedule, depending on the circumstances of the loans, and the lack of objections from the Crown.