Supreme Court rules on student loans in consumer proposal

Piekut v. Canada (National Revenue), 2025 SCC 13
When can government-issued student loan debts be released under the Bankruptcy and Insolvency Act?

Summary: In this case, the appellant completed her undergraduate degree in 1994 but later returned to university and did not cease to be a student until 2009. She completed her last period of study funded by a government student loan in 2003. In October 2013, she made a consumer proposal under the BIA. The key issue was when the appellant ceased being a student for the purposes of s. 178(1)(g) of the BIA — 2003 or 2009. This section prohibits a bankrupt from being released from their student loan debts or liabilities for seven years, unless hardship can be established, in which case borrowers can apply to be released from their student loan debts five years after ceasing to be a student. The appellant argued in favour of the “multiple-date approach”, which she said would have resulted in her being released from her student loans under her consumer proposal. The appellant submitted that the “single-date approach” is unfair to borrowers and causes absurd consequences by leading to discharge periods much longer than seven years (in this case, 22 years after she completed her first degree). The majority of the Supreme Court disagreed, finding that the single-date approach better reflects the purposes of s. 178(1)(g) — namely (1) to reduce government losses from student loan defaults in bankruptcy; (2) to ensure the sustainability of government student loan programs for future generations of students; and (3) to give borrowers a reasonable opportunity over a continuous period of time to capitalize on all of their education to repay their publicly funded student loans, and thus to deter opportunistic bankruptcies. Accordingly, the majority dismissed the appeal.

The appellant pursued several post-secondary education programs between 1987 and 2009. The appellant received federal student loans for nearly all her post-secondary education programs. From 1987 to 1994, she received $25,860 in federal student loans, and from 2002 to 2003, she received an additional $8,580. The appellant consolidated her various student loans into a single debt on several occasions between 2006 and 2009.

In October 2013, the appellant made a consumer proposal under the BIA. She listed her total assets as $280,529, consisting mainly of her condominium in North Vancouver and her car. She also listed her total liabilities as $356,155, consisting mainly of a mortgage on her condominium, her student loan debt, and credit card debt. At the time, her federal student loan debt was $26,658, and her Alberta student loan debt was $2,101. In December 2017, the appellant was granted a certificate of full performance of her consumer proposal.

The BIA has two main purposes: to equitably distribute a bankrupt’s assets among their creditors and to financially rehabilitate the bankrupt. A bankrupt’s financial rehabilitation involves allowing an honest but unfortunate debtor to obtain a discharge of their debts and giving them a “fresh start”, free of debt. The “fresh start” principle is reflected in s. 178(2) of the BIA, which states that, subject to exceptions in s. 178(1), “an order of discharge releases the bankrupt from all claims provable in bankruptcy”. The non-dischargeable claims in s. 178(1) “recognize that the fresh start policy of bankruptcy law must yield to certain overriding social policy objectives that require that certain claims be protected against the discharge”. Section 178(1)(g) of the BIA operates as an exception to the fresh start principle by limiting when an order of discharge releases the bankrupt from student loan debts.

Unlike the other debts and liabilities under s. 178(1) from which a bankrupt will not be released by an order of discharge, s. 178(1)(g) does not bar a bankrupt from being released from their student loan debts or liabilities completely; rather, it prohibits a bankrupt from being released from their student loan debts or liabilities for a statutorily prescribed number of years. Section 178(1)(g)(ii) provides that an order of discharge does not release the bankrupt from any debt or obligation in respect of a government student loan where the date of the bankruptcy occurred “within seven years after the date on which the bankrupt ceased to be a full‑ or part-time student”. In addition, Section 178(1) is followed by s. 178(1.1), a financial hardship provision, which gives the supervising court discretion to order that s. 178(1)(g) does not apply to a bankrupt’s student loan debt five years after the bankrupt has ceased to be a full- or part-time student if the bankrupt has acted in good faith and has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.

In June 2019, the appellant applied to the Supreme Court of British Columbia for a declaration that she “ceased to be a full- or part-time student” under s. 178(1)(g) of the BIA in 2003, and that her student loan debt was released under s. 178(2). In the alternative, the appellant applied for discretionary relief based on financial hardship under s. 178(1.1) and a declaration that s. 178(1)(g) no longer applied to her student loan debt. The appellant urged the court to adopt the multiple-date approach to s. 178(1)(g)(ii). She argued that even though she had been a full-time student as recently as 2009—only four years before she filed her consumer proposal in 2013—for the purposes of s. 178(1)(g)(ii), she ceased to be a student in 2003, when she completed her last period of study funded by a government student loan.

The chambers judge rejected this argument and followed the single-date approach endorsed by the Supreme Court of British Columbia in Mallory. On appeal, the Court of Appeal affirmed the decision of the chambers judge. In the Court of Appeal’s view, the multiple-date approach fails to adequately consider the structure and language of s. 178(1)(g); the differences between the English and French versions of the provision; and the effect of s. 178(1.1). The court also agreed with the court in Mallory, that the key question to ask under s. 178(1)(g)(ii) is “when did the bankrupt cease being a student”, and the “time to ask that question is the date when the assignment in bankruptcy was made”. Before the Supreme Court of Canada, the appellant argued that the courts below should have interpreted s. 178(1)(g)(ii) under the multiple-date approach, which would have resulted in her being released from her student loans under her consumer proposal.

The appellant in this case made a consumer proposal rather than an assignment in bankruptcy. Under s. 66.28(2) of the BIA, a consumer proposal accepted by creditors and approved by the court binds creditors regarding all unsecured claims and certain secured claims. However, s. 66.28(2.1) provides that a consumer proposal “does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) 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 the consumer proposal”. A borrower generally loses student status on the last day of the last month of their confirmed study period or on the last day of the month when their course load drops below the statutory minimum.

The legislative history and parliamentary debates surrounding s. 178(1)(g) of the BIA show that this provision pursues several mutually supportive purposes or policy goals: (1) to reduce government losses from student loan defaults in bankruptcy; (2) to ensure the sustainability of government student loan programs for future generations of students; and (3) to give borrowers a reasonable opportunity over a continuous period of time to capitalize on all of their education to repay their publicly funded student loans, and thus to deter opportunistic bankruptcies. The single-date approach promotes these purposes better than the multiple-date approach, and hence better reflects the purposes of s. 178(1)(g)(ii).

The text and context of s. 178(1)(g)(ii) support the single-date approach. This provision asks when the bankrupt “ceased to be”, or stopped being, a full- or part-time student under the applicable student loan legislation. It does not ask whether the bankrupt had earlier programs of study or whether the last program of study involved a student loan. Under s. 178(1)(g)(ii), the court must therefore determine whether seven years have passed between “the date on which the bankrupt ceased to be a full- or part-time student” under the applicable student loan legislation, on the one hand, and “the date [on which the] bankruptcy of the bankrupt occurred”, on the other hand.

The appellant submitted that the single-date approach is unfair to borrowers and causes absurd consequences by leading to discharge periods much longer than seven years. Here, the appellant completed her undergraduate degree in 1994, but because she returned to university and did not cease to be a student until 2009, the single-date approach would mean that she could not apply to be released from her student loans under s. 178(1)(g) until 2016 — 22 years after she completed her first degree. The Supreme Court disagreed, noting that this argument proceeds on the false premise that a borrower has a vested right to be discharged from their student loans in bankruptcy seven years after ceasing to be a student in relation to a student loan for a given program of study, and that waiting any longer is contrary to the purpose s. 178(1)(g).

A borrower who returns to school after earlier studies funded by student loans again benefits from a suspension of the obligation to pay interest or the principal on all their student loans, even if they receive no additional student loans. These benefits create a strong incentive for continuing education. After the borrower ceases to be a student, they can apply for interest relief and repayment assistance if needed. In cases of good faith conduct and financial hardship, Parliament also provided that borrowers can apply to be released from their student loan debts five years after ceasing to be a student under s. 178(1.1).

The Majority of the Supreme Court held that applying a textual, contextual, and purposive analysis under the modern principle, the single-date approach reflects the correct interpretation of s. 178(1)(g)(ii). Accordingly, the Majority dismissed the appeal.

The Minority of the Supreme Court held that neither the single-date nor multiple-date approaches represent the correct interpretation of s. 178(1)(g)(ii) of the BIA. Instead, the correct interpretation reconciles the language with both the purpose of the provision — to require a person to have a meaningful opportunity to repay the loan after they cease to be a student — and the rehabilitative purpose of the BIA. It reflects elements of both the single-date and multiple-date approaches and avoids the most absurd results of both.

The Minority found that the text indicates that Parliament intended for s. 178(1)(g)(ii) to have a forward-looking perspective, to ensure there is no release from any debt in respect of a loan made under student loan legislation within seven years after the time that the individual ceased to be a student. In this way, there is an opportunity to repay their publicly funded student loans. The section operates as a conditional statutory bar on the discharge of the bankrupt from the student loan debt outstanding when they ceased to be a student. That condition is satisfied when the date of bankruptcy does not occur within seven years after the completion of their studies, even if they later regain student status. However, where the individual becomes a student again before the seven-year period has elapsed, the provision requires that we look forward and begin to count when they next cease to be a student. In that case, the individual would have to wait a full seven years before they could be discharged of their student loans.

The Minority would allow the appeal in part, and declare that s. 178(1)(g) does not bar release of the appellant from her student loans incurred before she ceased to be a student in April of 1995.

Judgment delivered by Jamal J. (Wagner C.J. and Côté, Rowe, Kasirer and O’Bonsawin JJ. concurring)

Karakatsanis J. (Martin and Moreau JJ. concurring) dissenting in part

Professionals involved:

• Attorney General of Canada — Department of Justice, British Columbia Regional Office, Vancouver for the respondent

• Reedman Law for the appellant

• Attorney General of Ontario, Crown Law Office — Civil, Toronto for the intervener the Attorney General of Ontario

• Rousseau Lavoie (Justice-Québec), Direction du contentieux Québec, Québec for the intervener the Attorney General of Québec

• Ministry of the Attorney General — Legal Services Branch, Victoria for the intervener His Majesty The King in Right of the Province of British Columbia, as represented by the Minister of Finance

•  Torys, Toronto and Nanda & Company, Edmonton for the intervener the Canadian Alliance of Student Associations

• Gowling WLG, Toronto for the intervener the Canadian Association of Insolvency and Restructuring Professionals