Treatment of Government Student Loans in the Bankruptcy Context – Hardship Applications Part 2

The Hardship Application

If a government student loan is not forgiven in a bankruptcy, a student loan debtor has the right to make a hardship application for legal forgiveness of their government student loans under section 178(1)(g)(1.1) of the Bankruptcy and Insolvency Act (“BIA”). This relief is only available if the student loan debtor ceases to be a full or part-time student for the past five years or longer.

In a hardship application, the student loan debtor must satisfy the court under section 178(1.1) that:

  • (a) the debtor has acted in good faith regarding his or her student loan debts; and
  • (b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.

The burden is on the student loan debtor to satisfy the court that both criteria have been met. A court is unable to partially reduce the student loan indebtedness: the student loan debt is either completely extinguished or it survives.

Good Faith Requirement

In determining whether a student loan debtor acted in good faith, a court may consider one or more of the following factors:

  • (1) Was the money used for the purpose loaned?
  • (2) Did the applicant complete the education or make an honest effort to do so?
  • (3) Did the applicant derive benefit from the education in the sense of gaining employment in an area directly related to the education?
  • (4) Did the applicant make reasonable efforts to pay the loan or did the applicant make an immediate assignment into bankruptcy?
  • (5) Did the applicant take advantage of other options with respect to the loan such as interest relief or loan remission?
  • (6) Was the applicant extravagant or irresponsible with her finances?
  • (7) Did the applicant fairly disclose her circumstances on the application for the loan in the sense of acting with an honest intention?

It is a fact sensitive inquiry whether a student loan debtor can convince the court that he or she acted in good faith regarding his or her student loans.

The Applicant will continue to experience financial difficulties

Given the sparse decisions on section 178(1)(g)(1.1)(b), the British Columbia courts have looked to guidance from other provinces. The courts have also consistently interpreted section 178(1)(g)(1.1)(b) of the BIA to be consistent with the “fresh start principal” that honest but unfortunate debtors are entitled to a fresh start from their debts.

Two recent decisions of the BC Supreme Court involving hardship applications are found in Re Miller, 2016 BCSC 787 (“Re Miller”) and Re Roy, 2016 BCSC 1845 (“Re Roy”).

The court in both decisions cited the Nova Scotia Supreme Court case Re Cook, 2010 NSSC 224. Re Cook was cited for the principle that an individual should not be burdened with student loan debt that will take most of the person’s working life to pay off. Re Dunn 2012 NSSC 240 was cited for the principle that repaying a student loan for longer than ten years was too long. In both Re Miller and Re Roy, the student loan debtors satisfied the court that they acted in good faith and would continue to experience hardship as a result of their student loan obligations. As a result, the court ordered that student loans be relieved of their student loan obligations.

The court in Re Roy noted that even when a student loan debtor has satisfied the court under section 178(1)(g)(1.1), the court retains discretion whether to grant the relief sought. The court did not elaborate what factors it would consider when exercising its discretion when refusing to forgive a student loan. This question has been left for another day.

Conclusion

A hardship application requires a student loan debtor to adhere to procedural and evidentiary formalities. Otherwise, a student loan debtor may find that their evidence is incomplete or inadmissible, or irrelevant. The court may adjourn the hearing resulting in wasted time and resources for all those involved.

The individual facts often determine whether a student loan debtor can satisfy the court in a hardship application. A court may weigh all relevant factors and the circumstances surrounding the student loan debtor’s failure to make good on his or her student loan obligations when deciding whether to relieve student loan obligations.

There may be additional barriers to making a hardship application. As in the Re Roy decision, the student loan authorities may oppose a hardship application. An individual who is considering a hardship application for forgiveness of their government student loans should discuss their situation with a lawyer who focuses their practice on bankruptcy and insolvency matters or a Licensed Insolvency Trustee.

Treatment of Government Student Loans in the Bankruptcy Context – Hardship Applications Part 1

On October 30, 2016 Employment and Social Development Canada announced welcome news to existing students and soon to be graduates. Effective November 1, 2016, Canada Student Loan recipients who earn less than $25,000 per year will not be required to make payments towards the Canada Student Loan obligations (https://www.canada.ca/en/news.html ). There has been no announcement yet whether Student Aid BC or other provincial student loan authorities will be following this policy.

When student loan obligations become overwhelming more drastic steps may be necessary for some individuals to deal with the burden of their government student loans. This may include enlisting the assistance of an insolvency professional or a lawyer for advice on avenues for debt relief. In this blog posting, we will focus on student loans in the bankruptcy context and the hardship application.

Government student loans distributed under Canada or provincial student loan legislation receive special treatment from other unsecured debts under the Bankruptcy and Insolvency Act (“BIA”). Under section 178(1)(g) of the BIA, government student loans can be included and forgiven in a discharge from bankruptcy after a student loan debtor has stopped being a full or part-time student for seven or more years. If that is the case, the government student loan will be automatically eligible for a discharge along with the rest of their debts. If not, the student loan debtor will need to apply for a hardship application.

The treatment of student loans in the bankruptcy context are frequently misunderstood by student loan recipients. Individuals may mistakenly believe that student loan debts cannot be discharged or forgiven in a bankruptcy or that they are generally unaware of their rights under the BIA. As David Wood writes in his February 16, 2015 blog post “Student Loans – Hardship Applications”, student loan debtors may mistakenly believe that a student loan hardship application procedurally involves the completion and submission of a paper or electronic application to a government agency or the student loan authorities (http://www.boalewood.ca/2015/02/16/student-loans-hardship-applications/).

Hardship applications involves an application to the court and it is heard before a master or registrar (see generally- http://www.supremecourtbc.ca/sites/default/files/web/Bankruptcy-Student-Loan.pdf).

In part 2, we will discuss the hardship application itself.

Federal Budget 2013

By TERRY BECKER, Administrator

Some good news for small business.  The government, in this budget, will invest $225 million to expand and extend the temporary Hiring Credit for Small Business for one year.  This will provide a credit of $1,000 as against a small business employer’s increase in its 2013 EI premiums over those paid in 2012.

For those established businesses and those looking at retiring, slowing down and/or passing on their business within the family or selling, the government is providing an increase to the Lifetime Capital Gains Exemption.  It will be increased to $800,000 and will be indexed to inflation for future.  This is an increase to the support for small business owners, farmer and fishermen.  It will help these entrepreneurs to better ensure their financial security for retirement and will facilitate the intergenerational transfer of their businesses.

The temporary accelerated capital cost allowance for new investment in machinery and equipment in the manufacturing and processing sector has been extended for an additional two years, at a cost of 1.4 billion.

The 2013 budget provides $60 million over five years to help outstanding and high potential incubator and accelerator organizations in Canada expand their services to entrepreneurs, and makes available a further $100 million through the Business Development Bank of Canada to invest in firms graduating from business accelerators.

The federal Labour Sponsored Venture Capital Corporation tax credit which has been criticized as being an ineffective means of stimulating a healthy venture capital sector will be phased out by 2017.

Other good news initiatives are the new Building Canada plan to build roads, bridges, subways, commuter rail and other public infrastructure by cooperating with the provinces, territories and municipalities.   Details regarding Canada’s Temporary Foreign Worker Program will be announced in the coming months.  The government will work with employers to ensure that all efforts are made to hire Canadian workers before temporary foreign workers are considered.  The government noted that it will also propose to introduce user fees for employers applying for temporary foreign workers through the labour market opinion process so these costs are not absorbed by taxpayers.

The Canadian Chamber of Commerce “praises this cautious approach as it will provide the government with greater flexibility to handle unanticipated adverse events.”  “We urge the government to press forward with the further measures we have proposed to secure Canada’s economic future.”  Read more about Canadian Chamber’s Top 10 barriers.

Goodbye to “Parental Rights”

By Becker Lawyers

After years of waiting, this is the week where it all goes down.  This Monday, the new Family Law Act came into effect.  As I was re-reading the legislation this weekend, it struck me just how far our attitudes towards children have changed in the last hundred years.

Historically, children have always been the property of the parents, more specifically the father, and most, if not all, of the rights a child had flowed through that relationship.  The decisions of the father were paramount, and the concept of the state second-guessing the parent’s decisions, much less stepping in to seize a child due to parental misconduct would have seemed bizarre.  As anyone who reads the news can tell you, this hasn’t been the case for a long time.

Over the past 30 years, the role of the child’s rights in the determination of custody and access has gradually increased.  Last Friday, when determining questions of custody and guardianship, the children’s best interests were paramount and anything resembling historical “parental rights” bore little to no weight in the decision.  As of Monday, with the new Family Law Act, this transition is complete.  The best interests of the child are now the only considerations the court can take into account when answering these questions.

Moving Outstanding Debts Into Your Pocket

,

By Becker Lawyers

Your money belongs in your pocket.  I’d say that’s one good reason why we have pockets.  More often than not they’re much too big, full of empty space that should be filled with your hard-earned money.

The problem is, especially for the small businesses out there in the Maple Ridge and Pitt Meadows area, sometimes we end up filling the pockets of our creditors.  Most of the time this isn’t a problem as most creditors are decent people that are happy to make good on their debt due to the excellent products or services you provide.  However, there are always exceptions.

In the last year, I have been working with John to tackle these exceptions for our small business clients who want to collect on outstanding debt. Some of you may be familiar with the big red “Get Paid” logo splashed on our website homepage and email signatures, which is the culmination of our work.  The Get Paid business collections program enables you to streamline your collections efforts with flat legal fees – so no surprises, and full pockets.

Give it a try and give us your feedback! We’re listening.