The ruling upends how courts in multiple provinces approach student loan debts under bankruptcy law
In a move that will upend how courts in multiple provinces currently interpret federal bankruptcy and insolvency law, the Supreme Court of Canada declined to release a North Vancouver woman from her student loan debt on Thursday, ruling that she sought relief too close to the date on which she stopped being a student.
Under the Bankruptcy and Insolvency Act, a discharge order releases bankrupt individuals from all debts, except for certain types of claims listed under s. 178(1)(g)(ii) of the law. One of those exceptions is a student loan if the date on which an individual filed for bankruptcy is within seven years after they stopped being a student.
Courts across the country have long been divided on how to determine when a bankrupt individual ceased to be a student, typically falling into one or two camps. In Quebec and British Columbia, courts use a so-called “single-date” approach, which states that there is only one possible date when an individual stopped being a student: the date closest to when they file for bankruptcy.
In contrast, Ontario and Newfoundland and Labrador courts – as well as Nova Scotia, Saskatchewan, and New Brunswick registrars in bankruptcy – use a “multi-date” approach. This approach holds that there can be multiple dates on which a bankrupt individual possibly stopped being a student, which correspond to the end dates of the individual’s various programs of study.
The latter approach has historically released more individuals from student loan debts than the single-date approach.
The SCC ruled in favour of the single-date approach in a split decision. Writing for the majority, Justice Mahmud Jamal said the single-date approach better promotes the statutory purposes of s. 178(1)(g)(ii).
In contrast, he wrote, “The multiple-date approach results in absurdity: in some instances, it would allow borrowers to obtain a discharge of their student loans even before the government has had any opportunity to recover the student loan debt because any break in studies, however short, would trigger the start of the seven-year period under s. 178(1)(g)(ii).”
Justices Andromache Karakatsanis, Sheilah Martin, and Mary Moreau dissented in part.
According to the decision, Izabela Piekut attended multiple post-secondary programs between 1987 and 2009.
She attended the University of Calgary between 1987 and 1995, receiving a Bachelor of Arts degree and a teaching diploma. She returned to school in 2002 for a Bachelor of Education degree at the University of British Columbia, completing it in 2003. From 2006 to 2009, she pursued a Master of Education degree at the same school.
Piekut received federal student loans for each program except for her master’s degree, which she financed herself.
In 2013, Piekut made a consumer proposal that allowed her to repay a portion of her debts over a set period.
In 2019, she filed an application with the BC Supreme Court, seeking a declaration that she had stopped being a student in 2003 when she completed her last round of studies that student loans had funded. She argued that because she paid for her master’s degree on her own, the date that she completed the degree in 2009 should not be considered the date that she stopped being a student.
A BC Supreme Court dismissed Piekut’s application, ruling that she stopped being a student in 2009 based on the single-date approach. Because s. 178(1)(g)(ii) of the BIA bars individuals from being released of student loan debt if they file for bankruptcy within seven years of completing their studies, this ruling made Piekut – who made a consumer proposal only four years after finishing her master’s degree – ineligible to be discharged of her student loans.
The BC Court of Appeal affirmed the lower court’s order.
The SCC majority agreed, using the single-date approach to determine that Piekut was a student until 2009 and had, therefore, filed a consumer proposal too early to be released from her student loan debt.
“Applying the modern principle of statutory interpretation and interpreting s. 178(1)(g)(ii) based on its text, context, and purpose, I conclude that the single-date approach is the correct interpretation,” Jamal wrote.
“Critically, the single-date approach promotes the statutory purposes or policy goals of this provision: to reduce government losses on student loan defaults; to ensure the sustainability of student loan programs for future generations; and to ensure borrowers have a reasonable time after finishing their studies to capitalize on all their education to allow them to repay their student loans, thus deterring opportunistic bankruptcies.”
In the dissenting opinion, Karakatsanis said she would have allowed the appeal in part, overturning the BC Court of Appeal’s “conclusion that the single-date approach governs the interpretation of s. 178(1)(g)(ii).”
Karakatsanis wrote that s. 178(1)(g)(ii) functions instead “as a conditional statutory bar on discharge of an individual’s student loans.” Once an individual has ceased to be a student for a continuous seven-year period, that statutory bar no longer applies to their student loans. The individual can then pursue more studies in the future without jeopardizing their ability to be released from those loans.
“I would grant the appellant’s declaration in part,” Karakatsanis wrote. “The statutory bar does not apply to student loans she had accrued before she ceased to be a student in April 1995.”
In a statement to Canadian Lawyer on Thursday, a spokesperson for the Canadian Association of Insolvency and Restructuring Professionals, one of the interveners in the case, said that although the organization was advocating for a different outcome, "this decision at least levels the playing field across the country as prior to this SCC decision there was conflicting case law across the various Canadian provinces.
"In our opinion the SCC decision highlights some issues with the student loan provision in the BIA. CAIRP has long been advocating for changes to the student loans provisions in the BIA with respect to having more flexible dischargibility conditions which would ensure individuals with old student loans can access our insolvency systems to get a fresh start while still maintaining the ability for student loan regimes to get a fair recovery," the spokesperson added. "Some legislative change may be warranted to continue to strive towards a fairer insolvency system for all stakeholders."
Jeremy Opolsky, a partner at Torys LLP who represented another intervener, the Canadian Alliance of Student Associations, said the SCC majority on Thursday "strikes a contrast with the court’s previous decision in Poonian about exceptions from the fresh start that is incumbent with the discharge from bankruptcy. In that case, the court narrowly construed the exceptions, but here they were willing to give the exceptions a much broader interpretation.
"We argued that the interpretation sought by the government, the single-date approach, would create an absurdity," Opolsky added. "The majority found otherwise."
A federal government spokesperson was not able to immediately comment on the decision.
Counsel for Piekut declined to comment.
Editor's Note: This story has been updated with comments from the Canadian Association of Insolvency and Restructuring Professionals and Opolsky.
