Historical Background
In 1997, the federal government decided to treat student loan debtors differently and more harshly than other debtors by refusing to grant a discharge for two years following their assignment into bankruptcy. In 1998 this was increased to 10 years. Normally to delay or refuse a discharge for bankrupts required misconduct or an offence being committed. In other words, delaying, suspending or refusing a bankruptcy discharge was punitive and directed at some wrong doing. In the case of student loan debtors, it was an amendment to the Bankruptcy and Insolvency Act that isolated and punished student loan debtors simply because of the nature of their debt and nothing to do with their conduct.
To fully appreciate the travesty of justice resulting from this silent stroke of the parliamentary pen, one needs to be reminded that bankruptcy law is part of the Canadian social justice framework where all people should be treated fairly and equitably before the law.
The student loans issue is a contentious topic that breaks down into two distinct and opposing groups. One group believes very strongly that student loan debtors should not be able to gain access to a bankruptcy discharge like anyone else because student loans are. public money and the government can’t afford to let people get off so easy.
The other group believes that bankruptcy is a social safety net for honest individuals and families to find refuge and a solution to their impossible debt problems – no matter who the creditor might be. Bankruptcy legislation has provisions to respond to misconduct and offences committed by abusers of the credit system. These punitive mechanisms are available to all the other creditors, so why would it be necessary for the federal government to brand student loan debtors as something different, something bad, something much more nefarious?
Student loan debtors are human, just like all other debtors. They get sick. They get injured on the job or in car accidents. They become unemployed. They experience marital breakdown. They have children. They make mistakes with their investments. They are pretty much the same as everyone else. So, the act of parliament that isolates them from all other debtors is basically discrimination against a group on a massive scale – promulgated and executed by a democratic institution against a specific group of the poor – those who cannot afford to pay their creditors over a reasonable period.
At the time parliament decided to prohibit student loan debtors from a bankruptcy discharge for 10 years, the industry standard length for repayment plans for insolvent consumers was 5 years.
Even under bankruptcy legislation, 5 years was considered the maximum time period for consumer proposals (Part 2, Division 3 of the Bankruptcy and Insolvency Act). There were and continue to be many economic and financial reasons why the 10 year period was such an anomaly for the social justice promise of bankruptcy legislation – an absolute discharge and a fresh start for all honest but otherwise overburdened debtors .
10 years was considered quite harsh because cars and other necessary household assets depreciated and fell apart well under any 5 year period for most people. Of course it depended on how much travel was clocked up on the car, how new the car was, what kind of car it was and so on. Many many proposals and repayment plans fell apart the moment the car died and the good-intentioned debtor ended up in a bankruptcy anyway– without a car to get to work or transport the children to school.
10 years basically transcends any measure of reasonableness, fairness or sense of justice that discriminated against women, men and the children of a certain class – a social class of debtors – the student loan debtors.
Many of the poverty-stricken ex-students were on welfare and also had their court-ordered child support clawed back at the same time by the province of British Columbia.
Another problem was the post-secondary school landscape. How many student loan debtors possessed hair dressing certificates along with a $10,000 outstanding student loan? And all of the other non-university post-secondary institutions that, at the time of the 10 year prohibition, thrived on student loans for their funding. Many student loan debtors were enrolled in short term fields of study where there was little to no chance of ever finding employment. For some of us, we saw the student loan program as an easy source of funding for some of these institutes leaving the debtor stranded unemployed and bankrupt with a large student loan debt that failed to fulfill the promise of a better life.
The mainstream universities and colleges used student loans as a gift that kept on giving as tuition fees continued to increase along with their own operational costs. The student loan program would always lend more. The student loan debt would keep on going up.
In the report from the Standing Senate Committee on Banking, Trade and Commerce in 2003, “Debtors and Creditors Sharing the Burden” it recommended the discharge period for student loan debts be reduced from 10 years to 5 years. Nothing happened until 2009, 6 years later, when the prohibition was reduced to 7 years, not the industry recommended 5 year period.
In the case of bankruptcy, the government has already used the bankruptcy court as a collection tool to clear away all competing creditors to leave the solitary government student loan standing without any reference to or interest in the legitimacy of the person’s debt problem or the cry for compassion or mercy.
Now, the Province of British Columbia is threatening to take away the driver’s licence and/or car insurance for student loan debtors. It looks like debtor’s prisons are quickly returning to modern day democratic states from the 19th Century. The iron bars may be invisible, but the financial internment is real.
