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Handspiker (Re), 2018 NSSC 333

When will the Court grant an absolute discharge of student debt?

The Debtor made an assignment in bankruptcy in 2017, eight years after completing her studies in 2009. Her sole liabilities were provincial and federal student loans that amounted to $23,000. She is a member of a three-person household, and her household income falls just below the threshold for surplus income, as that term is defined in s. 68 of the Bankruptcy and Insolvency Act(“BIA”). She has no meaningful assets distributable in bankruptcy. As the assignment into bankruptcy occurred eight years after cessation of study, the student loans were not preserved by s. 178(1)(g) of the BIA and were subject to discharge. The Court noted that it was clear that the sole purpose of the assignment was the extinguishment of the student loans. 

In most cases, a student loan that would otherwise be dischargeable in bankruptcy is the epitome of a debt for which a person should “justly be held responsible”. Student loans are not the same as just any other pedestrian unsecured creditor. A debt for a student loan is, in essence, a debt owed to all the taxpayers of Canada. Student loan programs, both that of Canada and those of the provinces, are necessary to preserve equality of access to higher education. Those who avail themselves of the opportunity to partake in these loan programs and then fail to honour the obligations they have incurred put the programs in jeopardy.

The fact that student loans carry with them this high moral obligation for repayment does not mean that in appropriate circumstances such debts cannot and should not be discharged by bankruptcy. It does mean, however, that the approach taken by the courts in assessing what, if any, conditions to impose on such applications for discharge must take into account a number of factors which might not be appropriate if no student loan debt was involved.

The Court set out a non-exhaustive list of factors to be considered in cases such as the Debtor’s: 
  • Whether the student loan is the sole, or major, debt to be discharged;
  • If the student loan is not the sole debt, what proportion is it of the total dischargeable debt? If the bankruptcy appears to be for the sole or dominant purpose of clearing student loan(s), the “special consideration” status of the loan should be a notable consideration;
  • Whether the debtor has made efforts of repayment, given their means and circumstances over time, and from time to time;
  • Whether any payments made to date have been voluntary, involuntary, or a combination;
  • The lifestyle of the debtor, and whether they could have made other, additional or better efforts to service the debt;
  • The proportions of principal and accrued and unpaid interest, respectively;
  • The original principal amount;
  • Whether there have been any attempts to reamortize, refinance or otherwise service the loan outside of regular payment terms;
  • What use, if any, has the debtor made of the education for which the loan was advanced;
  • What is known of the debtor’s prospects over the next reasonable period of time, including such factors as the debtor’s age and comparative need to avail themselves of the financially rehabilitative functions of the BIA with enough time to pursue legitimate career, family and retirement needs;
  • Whether there are other obligations of public status, such as income or other tax liability, that evidence the debtor’s general disregard for the “public purse”;
  • What, if any, position or objection has been taken by the applicable creditor;
  • Whether the debtor, individually or through their family unit, has or may reasonably be expected to have “surplus income” within the meaning of the Superintendent’s guidelines;
  • Whether there are extraordinary factors, such as individual or family illnesses or special needs;
  • Whether the debtor could have made a viable proposal in bankruptcy; and
  • Whether this is a first or subsequent bankruptcy.

The Court considered the following facts to be salient for concluding that the Debtor made respectable efforts to service the debt: 

  • The Provincial loan entered repayment for $6,155.04 and the Debtor voluntarily paid a total of $4,196.93; and
  • The Federal loan entered repayment for $16,677 and the Debtor voluntarily paid a total of $1,201. An additional $3,539.71 was paid under one or more involuntary processes. 

A meaningful amount of the outstanding balances consisted of accrued interest. Further, the Debtor’s immediate financial prospects did not show any upward trend, and her income and expense sheets did not evidence any largesse.

The Court did not address all of the factors listed above, and not all of them would be applicable to the Debtor’s case. The Court was satisfied that there were sufficient considerations to favour granting an order of absolute discharge.

AppearancesKimberley Burke for the Trustee, BDO Canada Limited