Student Loans and Bankruptcy

What happens to my student loan if I declare bankruptcy ?

If you declare bankruptcy seven or more years after the date on which you ceased to be a full or part-time student, your student loan debts will be eligible for discharge along with your other debts.  If it has been less than seven years since you ceased to be a full or part time student, the debt will not be discharged and will survive the discharge of your other debts.

If your student loan debt survived your discharge, the Bankruptcy and Insolvency Act has a “hardship provision” available for those who continue to have trouble meeting their payments.  This is a Court application that is made by the debtor.  A pre-requisite of this hearing is that it must also have been at least five years since you have been a full or part time student.

At the hardship application, the Court may discharge your student loan debt if it is satisfied that you acted with good intentions in connection with your obligation to repay your student loans, and that you have experienced, and will continue to experience, financial difficulty that prevents you from repaying the debt.  The Court will also look at how debtors used student loan money, their efforts to complete their educational program, their efforts to repay the loans and their use of available interest-relief programs.

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Bankruptcy and Common Law Partners

Does bankruptcy affect my spouse or common law partner?

Your spouse, whether common law or married, will not be affected by your bankruptcy if they are not responsible for any of your debt i.e.: they did not sign a loan agreement or contract for any of your debt.

Should your spouse or common law partner have a supplemental or spousal credit card, they may be responsible for that debt. That will depend on the wording of the cardholder agreement.

Your spouse’s credit rating will not be affected by your bankruptcy and any assets in the spouse’s name will not be part of the bankruptcy.

If your spouse is responsible for any of your debt or has debt of their own, they should seek the advice of a Trustee to discuss their options.

A spouse may be affected by the income disclosure requirements during bankruptcy, but the Trustee will discuss this with you before filing

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If you have something you’d like to Ask a Trustee, use this form to submit your question.

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Bankruptcy Myth: You only see a trustee if you are going to go bankrupt

Do I only need to see a trustee if I’m going bankrupt ?

Trustees have a number of ways to help people who are facing financial difficulty.  Not just bankruptcy.  These can include credit counseling, refinancing, budgeting and making settlement offers or proposals.  At Boale, wood & Company, we offer a free initial consultation to discuss your options.

Trustees are the only professionals in Canada who can offer a full range of debt relief solutions, and the only professionals who can guarantee protection from your creditors.   Despite claims to the contrary, no other non-trustee firm can.

Trustees are highly trained individuals who are licensed by the Government.  The Trustees at Boale, Wood & Company Ltd. also belong to the Canadian Association of Insolvency and Restructuring Professionals.

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RESP and bankruptcy

Will I lose my RESP if I file for bankruptcy?

Yes. An RESP is an asset that can be cashed in to pay off debts to creditors.  An RESP is nothing more than cash and is not held in trust for the children.  However, you can consider a consumer proposal as an alternative to bankruptcy.  In this situation, you do not lose your RESP.

It is important to research your options in order to make the best decision for you.  We suggest that you meet with the professionals at Boale, Wood & Company Ltd. to discuss the options available.  We offer a free initial consultation – details on this page.

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If you have something you’d like to Ask a Trustee, use this form to submit your question.

And follow @askatrustee on Twitter

 

 

Tax Returns and Bankruptcy

I haven’t filed my income tax returns for the past two years.  Do I need to do this even if I haven’t been working?

No. You do not have to file your tax returns in order to file for bankruptcy. However, under the Income Tax Act you must file your income tax returns every year, regardless of whether or not you are eligible for a refund.

It is not illegal to owe the government money for taxes, but the Income Tax Act requires you to file a return every year, even if you didn’t make any money.

We suggest you review our article on tax returns.

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If you have something you’d like to Ask a Trustee, use this form to submit your question.

And follow @askatrustee on Twitter

 

 

The Disability Tax Credit

What is it and how is it treated in a Bankruptcy?

The Disability Tax Credit is one of the most misunderstood tax credits available.  For most people, they believe that it is a tax refund.

If you are eligible for the Disability Tax Credit, the effect is to provide you with an additional tax credit of $7,341 over and above the basic personal exemption, which is also a tax credit.

The credit is intended for those with severe and prolonged physical or mental impairments. To be eligible, the person must be “markedly restricted” in terms of speaking, hearing, walking, eliminating (bowel or bladder), feeding, dressing or performing mental functions of daily life.

A physician or licensed practitioner must complete and certify the medical section on the application form (Form T2201). In 2005, the Canada Revenue Agency broadened eligibility criteria and added a 10-year retroactive adjustment for those who can prove their impairment has lasted for years.  The adjustment is not a refund but just an additional tax credit.  It may generate a refund to the extent that you had paid tax in those prior ten years.

However, if you have no taxable income, or didn’t pay any tax during the year, the credit doesn’t help you.  And there is no carry-forward of any unused portion of the credit.

But if you have taxable income, it can create a credit that will allow you to pay less tax.  In addition to paying less tax, you may be eligible to receive additional increased benefits such as the Child Tax Benefit or GST/HST Credits.

In a bankruptcy, any tax refund that applies for the years prior to and including the year of bankruptcy would be property of the Trustee for the benefit of your creditors.  Any refunds generated for future years would be property of the debtor.

In order to qualify for the credit, refer to the Canada Revenue Agency Website for a discussion on eligibility at http://www.cra-arc.gc.ca/E/pub/tg/rc4064/rc4064-11e.pdf

Ask a Trustee

If you have something you’d like to Ask a Trustee, use this form to submit your question.

And follow @askatrustee on Twitter