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- Mark O'Meara,

Canada Student Debt Frequently Asked Questions!


Disclaimer: Please note that these are opinions based on past experience and should not be taken as legal advice.


Can I be sued?

Can the Bank Take Money From My Account?

Wage Garnishments

Can I declare bankruptcy?

What is the 10 year rule?

How do I repair my Credit?


Can I be sued?

... Yes, if the circumstances warrant such activity. Anyone can be sued, really. It is redundant to sue if there are no avenues of execution. With CSL, the rules are strict when it involves a "referral for justice". An agency can refer a CSL for justice, providing that all steps have been taken to secure a payment arrangement have been exhausted, and complete non-compliance on behalf of the loan debtor.

Will I be sued?  The probability is very little for Provincial Student Loans and bank sponsored student loans. Due to the systemic problems that the banks have imposed on some of you, it could be easily argued.. and tossed if it ever had to be heard in a courtroom. For CSL, the chances are greater in the event that complete non-compliance is evident and documented.

Here are the directives regarding an agencies referral for justice policy delegated from the HRDC:

No CSL client shall be referred for justice by the PCA collector if:

1.      a payment has been received within 6 months prior to the referral

2.      the loan is becoming stats barred within 12 months of the referral

3.      all of the necessary collection letters have not been issued, and one final call to secure a payment arrangement

4.      the CSL client is not gainfully employed

5.      There is no documentation or substantiation of a CSL client's refusal to pay

6.      A financial assessment and capacity form has been returned detailing hardship and disability; including all proof for substantiation

7.      the account placement to the agency is less than 6 months old



Can the Bank Take Money From My Account?

Yes! It should be noted that the *Bank* can, for a student loan that the bank holds (and in some cases for other debts) withdraw money from your account, or perhaps an account at another bank, depending on your loan agreement. It is best to close any account that was used to deposit a student loan into, and move to another bank or credit union. The bank may tell you that you are not allowed to close such an account, but it’s not true. They are just trying to protect their own interest.


Wage Garnishments

Before a garnishment can begin, a judgment must be in place, and an execution order issued. In other words, the collection agency must take you to to court. You will be notified of such a hearing.

If it is a consumer debt, the garnishee rate is 15% of your gross earnings ONLY if there are sufficient grounds to enforce it. It also depends on your income level, and the number of dependants that you have. For a single individual without dependants, the rate is 15% and the required level of income must be more than 220 - 240.00 per week.

When the government issues garnishee orders, they are more intense . They can acquire more than 15% as a rule. For instance, CCRA has a 20-25% rule unless the garnishee is causing hardship - and is proven so. They have been known to execute against 50% and even more in some cases. Again, it depends on the situation.

So, if you earn $2000.00/month ($1000 bi-weekly), you are single without dependants, the rate of garnishee would depend on who is enforcing this. The Crown could take as much as 20-25% of your gross, but an ordinary proceeding for a defaulted credit account would be 15%.

Garnishments are often threatened by collection agencies but rarely do they actually pursue this avenue, especially when they’ve illegally refused your payments!

If a garnishee is going to cause hardship, it can be appealed "down" in the event that it is substantiated. Federal garnishees are not as limited in comparison to what a traditional creditor can enforce. If the Crown can warrant a heavy garnishee, they will do so if they can substantiate it. Let's say if American Express were going to enforce a garnishment, they would only be able to take a maximum of 15% providing the debtor earns the minimum amount per week, and dependant status meets the justice criteria.

If a person is being garnished, it is up to the creditor, or judgment holder to reduce the amount in the event that it may cause financial hardship. Garnishees can be negotiated down - or removed

Can I declare bankruptcy?

You can still declare bankruptcy on debts other than student loans, but your student loans will remain intact and will have to be paid.  Student loans are no longer dischargeable through bankruptcy until 7 years after you cease being a full or part-time student or 5 years if hardship can be demonstrated.


What is the 10 year rule?

Please note that the 10 year rule has now been changed to 7 years or 5 years with hardship being demonstrated

The 10 year rule means that student loans can not be discharged through bankruptcy until 10 years after you have been a full or part time student, regardless of when you took out the loans. This means that if you just take one credit course, the clock starts ticking again.

#1 - The 10 year rule applies from the last day when you attended school. All student loans will survive a bankruptcy until 10 years has lasped from the time you finished school. Even then, it is entirely up to the courts to grant or set conditions to the discharge. If the courts feel that a bankrupt is in a position to repay, they will issue a conditional discharge. For people who have gone bankrupt, and their financial hardship is, or has been consistent, and no issues arise to give an indication that there is ability, then in all liklihood the loans will discharge.

 #2 - read the above #1. If you have been out of school for ten years to this date then you can apply to have the debt(s) discharged. You would appeal to the bankruptcy administrator that you had filed with, or contact the office of the superintendant of bankruptcy to inquire (613-941-1000).

Please note that the 10 year rule has now been changed to 7 years or 5 years with hardship being demonstrated


How do I repair my Credit?

Some of you are in major crisis over credit matters as a result of your student loan indebtedness. Repairing your personal credit statistics is not easy by any means, however there are MANY things that you can do to improve it.

First, you should be aware of the things that can harm it, or even destroy it. Student loan defaults certainly do not help but this is a common occurence in the lives of many. The good news is that student loan matters are addressed and understood by some lending institutions.

The desctructive activities that tend to render an individual vulnerable to derrogatory, or "bad credit" are:

1)slow payment history (rated 2,3,4,5's)
2)bad debt write off (rated 9's)
3)heavy credit seeking in a short or long period of time (Mass Inquiry)
4)being caught filing false information on credit applications
5)bankruptcy, Consumer proposal, OPD, and debt pooling (CCS)filing
6)having too many "revolving" , or R rated items
7)having public record items identifying judgments with/without disposition
8)Having collection agency inquiries into your personal credit porfolio

Repairing your credit is done by first developing a relationship with a specific credit granter, usually a bank. If you are "stuck" as a result of student loan defaults, then you should avoid the institutions that are responsible for their distribution. ie: Royal , CIBC,and BNS. You can ask the bank to give you a secured visa or mastercard with a low limit so that you may prove yourself. The bank will, in some cases, accept 100%-150% cash security to secure the credit card. This process from a bank's perspective is called "hypothication".

This process is difficult if you have unpaid credit cards (Visa, Mastercard, Amex) that are in collection already. Usually, the bank will not permit this benefit if you have this problem.

Another method of building a relationship is to secure an overdraft protection limit on your chequing account. It will help you build the relationship with the bank.
There are more strategic methods to conduct this form of "relationships development" practice. If you wish to seek assistance, you may consult with me.

CFW Group