The Rebecca Martyn Bankruptcy Windsor Blog

I spoke with a new caller this morning and she wanted to know what she could do about her student loans.  She graduated from school 6 years ago and has been unable to keep up the payments on her loan.  She called me to find out if bankruptcy is an option for her.

In our discussion, I found out that her student loan is $7,000, and she also has a line of credit in the amount of $5,000 and credit cards totaling $3,000.  She does not have any assets, other than an old car.  She is currently working and brings home around $1,800 per month.

She knew there was a 10 year rule and wanted to know more about it.  I explained that the Bankruptcy and Insolvency Act states that if a student loan is less than 10 years old, it is not discharged (released) upon filing bankruptcy (or a consumer proposal).  If she were to file for bankruptcy now, she would still be responsible for the student loan once she was discharged from bankruptcy.  In 4 years, if she finds she is still having difficulty paying, she can ask the bankruptcy court to discharge the debt.  She will probably need a lawyer to help her with this.  The bankruptcy court will then decide the outcome of the student loan.

If she filed for bankruptcy, she would not longer be paying her line of credit or credit cards.  As a result, it will give her some extra money each month to set aside to repay her student loan.

Another option might be to file a consumer proposal.  If the creditors, including student loan, accept the consumer proposal, it will put her on a payment plan for the term of the consumer proposal.  Once it is done, she can work out a repayment plan with student loans for the balance.

This website http://www.student-loan-bankruptcy.ca/ has a blog which discusses bankruptcy, student loans, and proposed amendments to the Bankruptcy and Insolvency Act.

If you are having difficulty with student loans, give me a call at 310-PLAN and we can talk about your situation.

I spoke with Troy (not his real name) today and he wanted to know how to deal with a secured creditor.  In this case, he pledged his furniture to a secured creditor and was hoping he could just file for bankruptcy to get rid of the debt, but be able to keep his furniture.

I explained to Troy that it is not as simple as that.  Pledging furniture for a loan is very similar to pledging your car for a loan.  If he doesn’t pay, the secured creditor has the right to seize the furniture he pledged as security.  If he files for bankruptcy, this right does not go away.  He mentioned that he heard that the law allows you to keep your furniture, but I explained that in a case like this the pledging of the security overrides the other law which would allow him to keep the furniture.

I suggested that if he wants to file for bankruptcy, he might be able to negotiate a new payment plan with the secured creditor after the bankruptcy is filed.  For example, if the loan is for $10,000 but the furniture is only worth $2,000, he could offer to pay the secured creditor $2,000 to allow him to keep the asset.  The theory behind this is that if the secured creditor seized the furniture that had been pledged, they would only get $2,000 for it.  The balance of $8,000 is part of the bankruptcy.

Troy asked if the same negotiation can be done with a car loan and mortgage.  It is up to each creditor, but my experience has shown that these debts cannot be easily re-negotiated.

If you would like to review your options with your secured creditors, call me at 310-PLAN or email me your question.