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 ( ). 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 (

Hardship applications involves an application to the court and it is heard before a master or registrar (see generally-

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