As a follow-up to my original post on July 24, 2012, I have taken the opportunity to perform additional research and study regarding the discharge of student loans in a Division II Consumer Proposal under the Bankruptcy and Insolvency Act ( BIA ).
But before I begin, I shall make two technical corrections to the original post of "vincentmusic". First, a Trustee in Bankruptcy or a Consumer Proposal Administrator must make an application to the Bankruptcy Court for an Order of Discharge from the administration of a Consumer Proposal. An Order of Discharge is NOT issued by the Canada Revenue Agency ( CRA ). Second, you stated " Date of Discharge: May 20, 2016". It should have read "Date of Completion of Proposal: May 20, 2016. A debtor cannot be Discharged from a Consumer Proposal. Either it is completed as agreed to under the terms and conditions of the Proposal or it is annulled. A debtor can only be Discharged from a Bankruptcy. In addition, in my opinion, you were given faulty or incorrect information from your Trustee regarding the Discharge of your student loans and the seven year rule. I will explain later in this post.
I have consulted with several Trustees in Bankruptcy as well as Consumer Proposal Administrators regarding the requirements that must be met to Discharge a student loan issued under the Canada Student Loans Act, the Canada Student Financial Assistance Act or an enactment of a province in a Division II Consumer Proposal. Without one exception, they all agreed that 2 conditions must be met before a student loan can be Discharged in a Consumer Proposal.
The debtor must have ceased to be a full-or part-time student AND there must be at least 7 years between the student's "end-of-study-date" and the date when the Consumer Proposal is filed. Unless these conditions are met, the student loan WILL survive the Consumer Proposal. Also, the student loan will continue to accrue interest during the Consumer Proposal.
To further support my research, I have read and studied the applicable portions of "The 2012 Annotated Bankruptcy and Insolvency Act" published by Carswell and authored by The Honourable L. W. Holden, formerly a Judge of the Court of Appeal for Ontario, The Honourable Geoffrey P. Morawetz, of the Superior Court of Justice and Dr.Janis P. Sarra, of the University of British Columbia, Faculty of Law and the Ontario Bar.
I have studied all the cases that they have cited in regards to the Discharge of student loans in a Consumer Proposal and the theme that runs through all these cases is the 2 conditions that must be met in order to Discharge a student loan in a Consumer Proposal. It is also interesting to note that of all the cases cited of which I read and studied, not one made any reference to the Ledoux case in support of the pleadings of the debtor attempting to Discharge their student loan.
In the Ledoux case, the Trustee in Bankruptcy, Carol Hayward of Deloitte and Touche Inc. issued a 170 Report at the end of the 8th month recommending that the Registrar Discharge the bankrupt, Patricia Ann Ledoux after 9 months in bankruptcy. The issuer of the student debt, the Canada Student Loan Program objected to the recommended Discharge of the bankrupt by the Trustee which meant that the matter was then referred to the Registrar ( Bankruptcy Judge ) for a hearing.
The outstanding amount of the student loan was $28, 403.29 of which the Attorney General of Canada had otained a judgment for in 1994. The debtor had completed her studies in 1989 for which she had obtained a loan under the Canada Student Loans Act. She returned to school in 1992 and finished in 2000 with funding provided by a third party.
The Registrar had to consider two issues.
1. Does Section 178(1)(g) operate in favour of CSL, so that the debt in question is not dischargeable for a period of 10 years ( now 7 years ) from 2000?
2. If the answer to question 1 is NO, what is the appropriate Discharge Order?
The submission of the CSL with respect to both issues was fairly simple. With respect to the first issue, counsel for CSL submits that the purpose of the legislation is to provide an individual with an opportunity to enter the workforce and make efforts to pay down the debt. Bearing the purpose in mind, counsel contends that even though the CSL debt is over ten years old, the date the bankrupt ceased her studies is the relevant date. Therefore, the student loan debt is not dischargable for a period of ten years from 2000. As a result, the discharge of the bankrupt will not affect the Canada Student Loan.
Counsel also submits that the legislation could easily have read that the ten year waiting period operates from the date each loan is granted. Since it did not, it must be intended to operate 10 years from the date the individual ceased to be a full-or part-time student.
If issue 2 is relevant, CSL requests that a conditional order be made as the bankrupt has surplus income and received some benefit from the course of studies she undertook as a result of student loan funding.
Unfortunately, the bankrupt was unrepresented and did not make any submissions with regards to the first issue. With respect to the second issue, the bankrupt contends that she has high expenses which would preclude any type of payment. She contends that she does not live an extravagant lifestyle, that a review of her monthly income and expense statements confirm this.
The bankrupt also contends that the certificate in Early Childhood Development as a result of student loan funding did not result in any significant employment opportunities and is the reason she sought additional education.
After weighing all the evidence placed before the Registrar, an Order was issued requiring the bankrupt to pay $6,000.00 to the Trustee for the benefit of the unsecured creditors. The bankrupt must pay this amount by monthly instalments of $200 per month commencing on March 1, 2005 and continuing on the first of each succeeding month thereafter until paid in full. Judgment interest will accrue to any payment in arrears. The option of prepayment exists. Upon payment of this sum, an Absolute Order of Discharge will be issued to the bankrupt. The objecting creditor was awarded costs of $400.00 payable out of the estate.
While this is an interesting case, it is not precedent-setting. The fact that there has been no references made to this case since 2005 in a Bankruptcy Court regarding the Discharge of student loans in a Consumer Proposal would seem to indicate the relevant insignificance of this case.
While I definitely agree with the position taken by Johnny as to how the legislation should read regarding the matching of student loans to the time period for which a debtor has ceased being a full-or part-time student, unfortunately, that is not how the current legislation reads.
Based upon my intensive research, it is very clear to me that unless a debtor has "ceased to be a full- or part-time student" AND seven or more years has elapsed between the "end of study date" and the date a Consumer Proposal is filed, the student loan WILL survive a Consumer Proposal.
However, during my research, I discovered two additional items which should be noted.
1. Under Subsection 66.38(2.1) of the BIA, it states as follows:
A Consumer Proposal accepted, or deemed accepted by the creditors and approved, or deemed approved by the court does not release the consumer debtor from any particular debt or liability referred to subsection 178(1) ( which includes student loans in paragraph 178(1)(g) ), unless the Consumer Proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability, voted for the acceptance of that Consumer Proposal.
Aside from all the legal "mumbo jumbo", this is what it means. If a debtor has included a student loan in a Consumer Proposal but the student loan did not satisfy the two requirements noted above, the student loan may still be Discharged providing a separate clause is inserted within the Consumer Proposal noting the student loan and stating that the student loan issuer is willing to accept a lesser amount owing on the student loan and so states the lesser amount that the student loan issuer will accept AND also votes in favour of the Consumer Proposal, the student loan will be Discharged when the Consumer Proposal has been completed. How likely this will happen is anyone's guess.
2. If a student loan has survived a Consumer Proposal, It is still possible to make a Subsection 178(1.1) (hardship) application even though the debtor has never made an Assignment in Bankruptcy, providing the debtor meets the requirements as stated in Subsection 178(1.1).
I trust that these comments will help to clarify the rules regarding students loans included in a Consumer Proposal.