You have graduated from University and have been unable to find a good paying job in your area of expertise. The periods of non-repayment and interest relief of your student loan debt have been maxed out. You are starting to get letters and/or phone calls from a collection agency. A friend tells you that he was in the same situation last year. He solved his problem by paying his student loan payments with his credit card. His logic was that the collection agency got off his back and he had no stress. If he got a good job, there would be enough money to pay everyone – even though he knew that the interest on the credit card was higher than the interest on the student loan. Plus, he got “points” on his credit card. The friends’ research pointed out that if he ever had to go bankrupt in the future, all of the credit cards debt should be included in the bankruptcy but student loans could not be included in the bankruptcy unless he was out of the school for more than seven years. He had the ultimate “win-win” situation.
Well, not quite. The interest rate on the average credit card is so high in relation to the interest on student loan debt, that any benefit from “points” is insignificant. If you do wind up filing an assignment in bankruptcy and your trustee (or the creditors) determine that you intentionally converted your student loan debt to credit card debt, be prepared for there to be an examination under oath before an Official Receiver (a representative of the Office of the Superintendent of Bankruptcy) who may recommend an opposition to your discharge from bankruptcy. At the very best, you will have to convince the licensed insolvency trustee/creditors/court that you had every intention of paying your debts and it was only a change in your financial circumstances that caused you to file the bankruptcy. As the worst, there will be a finding of an intent to commit fraud – a debt for fraud is not discharged in bankruptcy.
If the above is similar to your situation, please have a discussion about it with your trustee before signing any papers.
What can I do if I cannot make my student loan payments?
Thousands of Canadians cannot afford to pay their student loans. The law in Canada punishes anyone making a consumer proposal or filing for personal bankruptcy if they recently stopped being a full-time student. Student loans are not forgiven unless a person can satisfy the 7-year waiting period or the discretionary 5-year waiting period based on financial hardship.
If you cannot make your monthly student loan payments then you do have a number of options:
Firstly, your lender might offer a number of debt relief options. Secondly, it might be to your advantage to make small token monthly payments. Thirdly, if you have not made a payment on your student loan for a minimum of six months you can explore negotiating a one-time lump sum payment as settlement in full—sourcing funds from family members or the sale of an asset.
Finally, you might want to consider credit counselling as a “bridging strategy”. Credit counselling might help you reduce your monthly payments on your unsecured consumer debt—but not your student loan -which might significantly improve your cash flow situation. Some Canadians seeking personal bankruptcy or a consumer proposal will use credit counselling until they satisfy the all-important 7-year waiting period.
If you want to make a consumer proposal or file for personal bankruptcy and you have ceased attending school a minimum of 5 years—but not 7 years–then you can bring a motion before a judge who has a discretion to grant you a discharge on the grounds of financial hardship.
I have been researching my options lately because I am considering filing for bankruptcy and have a few questions for you regarding my student loan. I graduated from my undergrad in 2007 and then from my Master’s in October, 2011. I have been applying for the Repayment Assistance Program every 6 months through OSAP which has been very helpful considering I have not been able to make payments for a variety of personal reasons. I am aware that if I file for bankruptcy that I am not able to include my student loan until October, 2016 because The Bankruptcy and Insolvency Act indicates that there needs to be 7 years and sometimes 5 years in between the date that I ceased to be a full or part-time student and the date I file for bankruptcy. So, here are my questions:
If I have been benefiting from the Repayment Assistance Program does this mean that the 5 years changes the age of my loan?
Are there ways to apply to the court to consider my student loan to be discharged by my bankruptcy?
Are you able to meet with me to advise me and give me options?
Yes, if you have been receiving assistance from the repayment program, the age of your loan changes according to the Canada Student Loan Act as well as OSAP (Ontario Student Assistance Program).
There are ways to apply for a Hardship Provision to include your student loan. However, the court needs to have proof of the hardship and the court decides on a case-by-case application process.
Yes, we are able to meet with you to discuss your options and ensure your rights—please give us a call and we can answer your questions and book an appointment for you. There is no charge for the initial meeting. Charges and terms of payment for future work will be discussed at this initial meeting.
Our children and grandchildren are our future and what better gift can we give them than the gift of financial literacy. We need to teach the next generations about money: how to save, how to think about spending, how to budget, how to think about their financial future and who to go to for extra financial advice—when the time comes. Children need to understand the practical basics of money and develop a positive relationship with money in order to help them achieve what they want.
Here are a few tips to help parents get started:
First, know that parental involvement is key in children’s financial success
Teach children the value of money, how to earn money and how to budget
Do not spoil your children regardless of your income
Do not pay for whining or crying children
Do not always say no!
Discuss your family budget openly and often
Open a bank account for your child
Develop the idea of quality over quantity
Develop the notion that you can’t always get what you want
Teach young children how to count change and introduce and explain tax
Have a family discussion about allowance: Is it necessity?
Teach the “Pay yourself First” lesson or let them read: The Wealthy Barber
Introduce the idea of Good vs. Bad spending
Discuss the true nature of Credit Cards: Pros and Cons
Introduce the idea of charity and why people give to others—if possible