A student loan is often the first major loan many people will take out in their lives. Students at a young age take on a lot of financial responsibility, often more than they bargained for.
Even students in Canada, where tuition is often lower than in the United States, graduate owing tens of thousands of dollars that take years to pay off. Once interest is calculated, those student debts become even harder to pay off.
What can do you if you find yourself struggling to make payments on your student debt? If you’ve recently graduated, your options may be limited to restructuring your debt to reduce the amount you pay every month. Keep in mind that smaller payments mean a larger debt in the long run as you pay off interest before the principal. If more time has passed, you may have other options as well.
#1 Talk to a Bankruptcy Trustee
Anyone who consistently struggles to make debt payments should consider talking to a bankruptcy trustee, now known as a Licensed Insolvency Trustee. Bankruptcy trustees such as David Sklar & Associates provide free initial consultations in which you can find out how to proceed with your debt. There are several courses of action that might be suggested:
- Debt Management: You may be able to afford more than you think. A debt management plan can sort out your finances so that you can meet your debt payment obligations.
- Consumer Proposals: Discharging your debt through a payment plan that lasts up to 5 years.
- Bankruptcy: Discharging your debt by selling non-exempt assets.
#2 Determine Your Eligibility to Discharge Student Debt
Two factors determine whether you are eligible to discharge student debt: the time since you were a student and your financial situation.
There are two waiting periods you should be aware if you want to discharge your student debt.
The 7-year waiting period – You cannot automatically discharge student debts in a bankruptcy or a consumer proposal until 7 years after you completed your education.
The 5-year waiting period – In some exceptional circumstances, a “hardship provision” means your student debt could be discharged alongside other unsecured debts after only 5 years since you completed your education. This would take into account how you used your student loan, your repayment efforts, and your efforts to complete your education.
The other consideration is whether you are insolvent, something bankruptcy trustees like David Sklar & Associates determine by looking at your income, assets, expenses, and debt. Being insolvent makes you eligible for a consumer proposal or a bankruptcy.
#3 Choose Between Bankruptcy and a Consumer Proposal
A bankruptcy trustee will help you understand the difference between bankruptcy and consumer proposal and which option is better for you. Much depends on your financial situation and your financial history. A bankruptcy requires you to sell non-exempt assets to repay your debts. However, there are considerable exemptions, such as equity in your home, equity in your vehicle, tools of the trade, and personal belongings. A bankruptcy may be better for someone who has not built up significant assets.
If you have non-exempt assets such as equity in your home, a secondary residence, investments, or valuable family heirlooms, a consumer proposal is a way to pay back a portion of your debt over time and stop interest without selling any of these assets. There are other reasons to consider a consumer proposal, such as a past bankruptcy.
Start by talking to a bankruptcy trustee.