Stress & Mental Health Dealing with Student Loans

Before: The Honourable Mr. Justice Goepel

Reasons for Judgment

Appearing In Person:	C.W. Cummings
Counsel for Attorney General of Canada, Canada Student Loans:	L.C. Turner
Date and Place of Hearing:	September 22, 2003
	Kelowna, B.C.

INTRODUCTION

[1] The Attorney General of Canada appeals an order of a Master made July 2, 2003, granting Mr. Christopher Cummings an absolute discharge from bankruptcy. Mr. Cummings' outstanding debts consisted almost entirely of student loans.

BACKGROUND

[2] From 1988 until 1992, Mr. Cummings attended Simon Fraser University. He graduated in August 1992 with an Honours degree in Geography. During his studies, he borrowed $15,195 from the Canada Student Loans Program.

[3] Subsequent to graduation, he was unable to obtain employment in a field for which he was qualified. He began work as a bartender. In 1993, after having failed to negotiate an extension of his interest-free status, he defaulted on his loan payments.

[4] In May 1994, Mr. Cummings and his wife moved to South Korea where he obtained employment as an English teacher. He remained in South Korea until May 1998. By November 1997, he had saved the equivalent of approximately $40,000 Canadian held in Korean currency. Subsequent devaluation of the Korean Won reduced his savings by half. Mr. Cummings and his wife returned to Canada in May 1998 with approximately $20,000 in savings.

[5] In the fall of 1998, Mr. Cummings was accepted into the Computer Systems Operation and Management Program at the University College of the Cariboo in Kamloops. Mr. Cummings indicates that his plan was to complete the program in order to get a good job that would give him the financial ability to address his outstanding debts.

[6] In December 1998, Mr. Cummings' wife, who suffers from epilepsy, became pregnant. Because she was pregnant, her medication had to be reduced to a minimum level making it impossible for her to work. Their daughter was born in August 1999. His wife has not returned to work.

[7] Mr. Cummings is presently employed in the computer field as a computer port developer. That employment opportunity arose from a cooperative education work semester. Since April 2003, he has been earning $23.50 per hour. Because of his employment, he is still one semester short of completing his computer program. He must complete the program by January 2005. If he does not complete the program, his opportunities for work in the computer field will be limited.

[8] As of December 16, 1994, the outstanding balance on Mr. Cummings' Canada Student Loan was $16,450.67. In 1995 he made one voluntary payment of $300.00. On March 21, 1996, by way of set off from a tax refund, $1,072.60 was paid toward the loan and on September 20, 2000, a further $1,387 was recovered. On October 23, 2000, the Attorney General of Canada obtained a judgment against Mr. Cummings in the amount of $22,658.25.

[9] Mr. Cummings agreed to pay $150.00 per month on the judgment until he completed his education, at which time the payment scheduled would be reviewed. Between February 1, 2001 and September 5, 2002 Mr. Cummings made 18 payments totalling $2,700.00. A further $274.53 was recovered by way of set off. In total, Mr. Cummings has paid $5,646.47. The amount now owing, including interest, is $22,991.60.

[10] Mr. Cummings made an assignment into bankruptcy on October 8, 2002. His liabilities totalled $28,997.84. All but $170 of his liabilities arose from student loans. As of October 8, 2002 he owed the Provincial student program $6,327.84 and the Canadian Student Loan program $22,500.00.

DISCUSSION

[11] Because the bankruptcy was filed just over ten years after Mr. Cummings' last period of study, s. 178(1)(g) of the Bankruptcy and Insolvency Act, R.S.C. 1985, C. B-3 does not apply. Mr. Cummings' discharge must be considered under the general principles of the Act.

[12] In Re Legault (1994), 88 B.C.L.R. (2d) 242 (C.A.), the court noted that student loans have special characteristics in that they are only made on proof of financial need and are expected to be repaid from future earnings. In considering student loans in the context of a discharge application, Mr. Justice Hollinrake, speaking for the majority, held at � 48:

...that on a discharge application, while student loans are not to be treated differently from other debts in terms of the principles to be applied by the court, the court can and should, as part of its deliberations, be mindful of the unique characteristics of a student loan. I emphasize again that, in my opinion, the court should not focus on the fact that the debt was created through a student loan program to the extent that the general principles which apply on a discharge application are in any way lessened.

[13] In Legault, Mr. Justice Hollinrake held that in determining the appropriateness of a discharge it was open to the court to consider the factors set out by Mr. Justice Macdonald in Re Van Steenes (1992), 13 C.B.R. (3d) 131 (B.C.S.C.), including: the prejudice to a single significant creditor, the public interest in upholding student loan programs, the bankrupt's failure to make reasonable efforts to pay and the bankrupt's present and future capacity to pay. Mr. Justice Hollinrake cautioned that those considerations cannot be given such emphasis that the conditions attached to a discharge will "tie a millstone around a man's neck".

[14] The Master in brief reasons granted Mr. Cummings an absolute discharge. He stated:

Considering the situation since Mr. Cummings graduated in 1992, and the circumstances in which he presently finds himself, that is to say, supporting an epileptic wife and a child, it is my view - and I am going to exercise my discretion - to grant him an absolute discharge.

[15] In Patterson v. Royal Bank (1984), 59 B.C.L.R. 234 (C.A.), the Court of Appeal stated that an appellate court may disturb a decision regarding a discharge from bankruptcy if the judge misconstrued a fact, violated a principle of law or imposed conditions that are too severe. In Re Perlman (1993), 22 C.B.R. (3d) 248 (B.C.S.C.), Mr. Justice Tysoe held that the criteria articulated in Patterson apply equally to a judge considering an appeal of a registrar's order regarding a discharge.

[16] I am satisfied that by emphasizing Mr. Cummings' present situation the Master failed to properly consider the principles applicable to a discharge from bankruptcy when student loans are involved.

[17] Mr. Cummings graduated from university in 1992. Other than one $300 payment in 1995, he made no attempt subsequent to graduation to pay down his student loans. He defaulted on the student loans within months of graduation. In 1994, Mr. Cummings and his wife left for Korea, where they saved substantial sums of money, while ignoring the obligations Mr. Cummings had incurred.

[18] When they returned to Canada in 1998 with $20,000 in savings, Mr. Cummings made no attempt to reduce his student loan debt. It was only after the Attorney General of Canada took judgment against him that he began to repay his obligations.

[19] Mr. Cummings is presently earning in excess of $23 an hour. I am told his annual wage is approximately $49,000.00. It would appear that his earnings presently exceed his expenses by some $400.00 a month.

[20] Although Mr. Cummings has indicated his present financial position may not be as rosy as it appears because of the economic problems facing his employer and the potential costs of returning to school to complete his program of studies, he has shown the ability to earn income. He has the present and future capacity to make payments.

[21] Taking all of the circumstances into account, I have concluded that an absolute discharge is not appropriate in this case. Mr. Cummings discharge from bankruptcy will be conditional upon payment to the Trustee of an additional $9,600.00. He shall pay that amount at a minimum rate of $200 a month commencing November 1, 2003 and he may pay such greater amounts as he chooses in order to accelerate the date of final payment and discharge.

"R.B.T. Goepel, J."
The Honourable Mr. Justice R.B.T. Goepel