consumer proposal,  personal bankruptcy

Can a lawyer file a consumer proposal or bankruptcy on law school debt?

I currently make an income of $80,000 a year before tax. I’m 27 year old female with no assets. I’m not sure if I should consider bankruptcy, consumer proposal or what to do.

My debt:

  • 150k line of credit at prime + 1%
  • 50k government student loans at approx prime + 1%
  • No credit card debt (I have 3 credit cards with ~$15k total limits but pay them off monthly)

What I’m freaked out about- all my money goes towards paying off debt and living expenses; I feel like I’m drowning and can’t save.

My debt feels never ending because of current interest rates and I’m also very aware that time is money.

I’m nearly 27 with zero retirement savings and no savings to buy a home in the future

I love my life and feel lucky for my education and job (especially because I had a very rough up bringing). But I’m so stressed out about this, especially because I really really really want children and a family soon! This debt feels like a barrier to that.

I am considering going bankrupt (since it would likely take me about 7 years to save for a home anyways -might as well be putting that money towards a down payment or RRSP rather than a paying off these loans) or doing a consumer proposal.

I can only do this on my line of credit – government student loans don’t qualify. I’m leaning less towards bankruptcy because my higher income would mean a 21-month discharge process (unless I switched jobs, lol)

I would appreciate some advice. I was a student for quite some time so being a full adult feels new/hard to me. I feel very alone in this because I am embarrassed to talk to anyone about it in my personal life. I’ve overcome difficult situations before and I know 100% I can do it again I just want to be as strategic as possible about it!

Also, not sure if it’s worth mentioning but most of my debt comes from my 7-year university education (I’m a lawyer) that I put myself through. I did work several jobs through school but my field of study was pretty demanding so I couldn’t work full time during studies +expensive law school tuition! I’ve been basically supporting myself since 16.

 

Victor Fong, Licensed Insolvency Trustee responds:

I assume that the $150,000 you owe is a professional student line of credit that you used to finance law school?

This aspect is important: the Courts have taken the following position on non-government student loans used to finance a professional degree, such as a law school degree or a medical school degree:

  1. The loan was used to finance an asset, namely the education you acquired in law school which will generate significant future income.

  2. In a bankruptcy, an LIT is required to realize on your assets for the benefit of your creditors. The “asset” that you have is the ability to generate significant income from your law school education.

  3. Therefore, your LIT would have to realize on the “asset” by collecting payments from you so that the line of credit is repaid in full.

As you’re probably aware, you’d be eligible for an automatic discharge if you were to pay your surplus income obligations as required under the Bankruptcy and Insolvency Act.

The above scenario I described would transpire only if the bank opposed your automatic discharge from bankruptcy. But this would almost certainly happen unless their legal department drops the ball in reviewing your bankruptcy file.

The other alternative for you of course is to file a consumer proposal – i.e., a settlement of the $150,000 that you owe to your bank which can be paid interest-free over 60 months.

But why would your bank accept a consumer proposal when they can reject it and get full repayment of what you owe them if you were to file for bankruptcy?

You can certainly try filing a consumer proposal and see if your bank would actually accept a settlement- perhaps their legal department will drop the ball when reviewing your consumer proposal file and you’ll get lucky.

Good luck 🤞

 

 

 

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With many years of experience in the insolvency field, Victor has been involved in both corporate and consumer insolvency engagements. Previously with a large national firm, Victor founded Fong and Partners Inc. so that he could dedicate his professional life to help people from all walks of life to deal with their debt.