In this article we’ll explore Consumer Proposals and student loans, including what a Consumer Proposal is, how a Consumer Proposal works, and in what circumstances you might be able use a Consumer Proposal to help you deal with your student loan debt.
What is a Consumer Proposal?A Consumer Proposal is the debt relief solution of choice for people in Canada who are struggling with problem debts. It allows them to pay towards what they owe through a series of monthly payments. Once the payment term is complete, the individual will be debt free.
A Consumer Proposal can last up to five years depending on the size of your monthly contribution and can only be set up by a Licensed Insolvency Trustee (LIT). Licensed Insolvency Trustees are debt professionals who will help arrange the Consumer Proposal and present it to your creditors, who have 45 days to accept or reject it.
If your creditors accept the arrangement, they will agree to a monthly payment term that allows you to make a contribution to your debts based on what you can afford. At the end of that term, you will be automatically discharged from the Consumer Proposal and any outstanding debt will be written off.
What debts can be included in a Consumer Proposal?Consumer Proposals are typically used to help people deal with unsecured consumer debt, like:
- Credit card debt
- Store card debt
- Payday loans
- Other unsecured consumer debt
Does a Consumer Proposal cover student loan debts in Canada?In Canada, student loans are guaranteed by the federal government, which means they are treated differently than credit card debt or other forms of unsecured debt.
While credit card debt can be automatically discharged in a personal bankruptcy or Consumer Proposal, there are certain criteria for student loans if they are to be covered in those debt payment arrangements.
The bankruptcy and insolvency act states that student loans can only be covered by a legally binding debt arrangement if the student loan occured:
- Within seven years after the date on which the bankrupt ceased to be a full- or part-time student
What is the seven-year rule and how does it affect my Consumer proposal / student loans?A consumer proposal covers most types of unsecured debts, but there is a seven year rule for student loans. Only if you have been a graduate for at least seven years can you include student loan debt in your consumer proposal, otherwise you will remain responsible for repayment.
It’s a similar story with bankruptcy in Canada. While it is possible to declare bankruptcy and be freed from responsibility for your student loans, at least seven years must have passed since your graduation for your student loans to be eligible for forgiveness.
What that means in practice is that if your student loan debt is over seven years old, you will be able to bring it into your Consumer Proposal and deal with it alongside any other debts you are carrying. Once your Consumer Proposal ends, you will be free of student loan debt.
If your student loan debt is less than seven years old, on the other hand, you won’t be able to bring it into the arrangement. If you go ahead with a Consumer Proposal, you will be expected to make a monthly payment to your creditors while also keeping up with any necessary student loan repayments.
What should I do if my student loan is more than seven years old?Whether you are filing a bankruptcy or Consumer Proposal in Canada, if your student loan is more than seven years old, you may have to consider alternative student debt relief options. Below are some examples of ways you can deal with your student loan debt.
Debt consolidationA debt consolidation loan does not involve debt forgiveness, but it can be a useful way of managing your debts and ensuring you don’t default on repayments, especially if you have other debts to deal with on top of your student loan repayment.
Instead of juggling multiple repayments to different creditors, debt consolidation allows you take out one overarching loan which you repay via a single monthly payment. That money is then distributed amongst all your creditors, streamlining the debt repayment process and meaning you can deal with all your debts via a single monthly payment.
Consumer Proposal without student loan debtsIf you’re having serious financial issues and are carrying significant levels of debt over and above your student loan debt, a Consumer Proposal may still be a good solutions.
A Consumer Proposal allows you to pay off your unsecured debt through a series of affordable monthly payments, and will allow you to clear the rest of your debt in a maximum of five years, giving you more financial scope to deal with your student loan debt.
Consumer Proposal with student loan debts (in exceptional circumstances)While it’s not very common, there are circumstances in which you can even request to have your student loans discharged into a Consumer Proposal by the lender.
Creditors would normally only agree to this if your student loans were close to the seven-year mark, were such a strain on you financially that your only alternative would be to file for bankruptcy, and this allowing you to enter a Consumer Proposal would allow them to recoup slightly more of their money.
Where can I get debt advice and support with student loan debt?If you’re in significant debt and facing financial hardship, the last thing you need is to receive a letter or email from your lender requesting that you repay your student loan.
If you’re worried about your student loans and don’t know who to talk to, talk to us. For a free consultation on your financial future, call A. Fisher & Associates today.