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Insolvency (BIA) - Discharge Exceptions - Student Loans [BIA s.178(1)(g)]. Piekut v. Canada (National Revenue)
In Piekut v. Canada (National Revenue) (SCC, 2025) the Supreme Court of Canada dismissed an insolvency appeal, here involving "when a bankrupt is released from their government student loan debts under the Bankruptcy and Insolvency Act".
Here the court canvasses BIA law regarding the non-discharge of student loan debts:A. Relevant Statutory Schemes
[25] The BIA and the federal, provincial, and territorial student loan schemes operate together to address student loans in bankruptcy or under a consumer proposal. I will consider each in turn.
(1) The BIA
(a) The BIA Limits When an Order of Discharge Releases a Bankrupt from Student Loan Debts
[26] The BIA has two main purposes: to equitably distribute a bankrupt’s assets among their creditors and to financially rehabilitate the bankrupt (Aquino v. Bondfield Construction Co., 2024 SCC 31, at para. 36; Poonian v. British Columbia (Securities Commission), 2024 SCC 28, at para. 1). A bankrupt’s financial rehabilitation involves allowing an honest but unfortunate debtor to obtain a discharge of their debts and giving them a “fresh start”, free of debt (Aquino, at para. 36, citing F. Bennett, Bennett on Bankruptcy (26th ed. 2024), at p. 37; Poonian, at para. 1).
[27] The “fresh start” principle is reflected in s. 178(2) of the BIA, which states that, subject to exceptions in s. 178(1), “an order of discharge releases the bankrupt from all claims provable in bankruptcy” (Poonian, at para. 1). The exceptions or non-dischargeable claims in s. 178(1) include debts or liabilities for fines, penalties, and restitution orders imposed by a court in respect of an offence (s. 178(1)(a)); awards for damages for intentional bodily harm or sexual assault (s. 178(1)(a.1)(i)); fraud or misappropriation by a fiduciary (s. 178(1)(d)); obtaining property or services by false pretences or fraudulent misrepresentation (s. 178(1)(e)); certain claims not disclosed to the trustee (s. 178(1)(f)); government student loans (s. 178(1)(g)); and debts for interest on the preceding amounts (s. 178(1)(h)).
[28] The non-dischargeable claims in s. 178(1) “recognize that the fresh start policy of bankruptcy law must yield to certain overriding social policy objectives that require that certain claims be protected against the discharge” (R. J. Wood, Bankruptcy and Insolvency Law (2nd ed. 2015), at pp. 312-13). They are “the kind of claims that society, through Parliament, considers to be of a quality that outweighs any possible benefit in the bankrupt being relieved of them” (Poonian, at para. 25, citing J. Sarra, G. B. Morawetz and L. W. Houlden, The 2024 Annotated Bankruptcy and Insolvency Act (2024), at § 7:185, and Jerrard v. Peacock (1985), 1985 CanLII 1148 (AB KB), 37 Alta. L.R. (2d) 197 (Q.B.)).
[29] Section 178(1)(g) of the BIA operates as an exception to the fresh start principle by limiting when an order of discharge releases the bankrupt from student loan debts. As noted, it provides that an order of discharge does not release the bankrupt from student loan debts made under federal, provincial, or territorial student loan legislation if the bankruptcy occurred either before the debtor “ceased to be a full- or part-time student . . . under the applicable Act or enactment,” or “within seven years after the date on which the bankrupt ceased to be a full- or part-time student”. Unlike the other debts and liabilities under s. 178(1) that a bankrupt will not be released from by an order of discharge, s. 178(1)(g) does not bar a bankrupt from being released from their student loan debts or liabilities completely; rather, it prohibits a bankrupt from being released from their student loan debts or liabilities for a statutorily prescribed number of years. Section 178(1)(g) states:178 (1) An order of discharge does not release the bankrupt from
....
(g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred(i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or
(ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student; 178 (1) Une ordonnance de libération ne libère pas le failli:....
g) de toute dette ou obligation découlant d’un prêt consenti ou garanti au titre de la Loi fédérale sur les prêts aux étudiants, de la Loi fédérale sur l’aide financière aux étudiants ou de toute loi provinciale relative aux prêts aux étudiants lorsque la faillite est survenue avant la date à laquelle le failli a cessé d’être un étudiant, à temps plein ou à temps partiel, au regard de la loi applicable, ou dans les sept ans suivant cette date; [30] Section 178(1) is followed by s. 178(1.1), a financial hardship provision, which gives the supervising court discretion to order that s. 178(1)(g) does not apply to a bankrupt’s student loan debt five years after the bankrupt has ceased to be a full- or part-time student if the bankrupt has acted in good faith and has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt. Section 178(1.1) provides:(1.1) At any time after five years after the day on which a bankrupt who has a debt referred to in paragraph (1)(g) or (g.1) ceases to be a full- or part-time student or an eligible apprentice, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that
(a) the bankrupt has acted in good faith in connection with the bankrupt’s liabilities under the debt; and
(b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.
(1.1) Lorsque le failli qui a une dette visée aux alinéas (1)g) ou g.1) n’est plus un étudiant à temps plein ou à temps partiel ou un apprenti admissible, selon le cas, depuis au moins cinq ans au regard de la loi applicable, le tribunal peut, sur demande, ordonner que la dette soit soustraite à l’application du paragraphe (1) s’il est convaincu que le failli a agi de bonne foi relativement à ses obligations découlant de cette dette et qu’il a et continuera à avoir des difficultés financières telles qu’il ne pourra pas acquitter celle-ci. (b)A Bankrupt Can Be Released from Student Loan Debts Under a Consumer Proposal Subject to the Same Limitations as an Order of Discharge
[31] The appellant in this case made a consumer proposal rather than an assignment in bankruptcy. A consumer proposal is a procedure under the BIA allowing insolvent individuals who meet certain conditions to propose an arrangement to pay their creditors a percentage of what they owe, or to pay their debts over an extended period, or both, subject to the supervision of an administrator. Consumer proposals are generally quicker, more efficient, and less costly than bankruptcy. Many consumer debtors prefer a consumer proposal to an assignment in bankruptcy to avoid the stigma of bankruptcy and because a consumer proposal often allows a debtor to keep their house or apartment, vehicle, or other property (BIA, ss. 66.11 to 66.4; Wood, at pp. 15 and 564-74; L. W. Houlden, G. B. Morawetz and J. Sarra, Bankruptcy and Insolvency Law of Canada (4th ed. rev. (loose-leaf)), at § 4:152; J. D. Honsberger and V. W. DaRe, Honsberger’s Bankruptcy in Canada (5th ed. 2017), at p. 230; D. Brochu, Précis de la faillite et de l’insolvabilité (6th ed. 2022), at ¶¶21-1 to 21-26).
[32] Under s. 66.28(2) of the BIA, a consumer proposal accepted by creditors and approved by the court binds creditors regarding all unsecured claims and certain secured claims. Under s. 66.38, a successfully performed consumer proposal entitles the debtor to a certificate issued by the administrator with the same effect as an order of discharge in bankruptcy (Houlden, Morawetz and Sarra, at § 4:169). At the same time, s. 66.28(2.1) provides that a consumer proposal “does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability voted for the acceptance of the consumer proposal”.
[33] Under s. 66.4(1), all provisions of the BIA (except Division I of Part III, which deals with proposals not specific to consumers) apply to consumer proposals “in so far as they are applicable” and “with such modifications as the circumstances require”.
....
(4) The Residual Presumption of Restrictive Interpretation Does Not Apply
[108] Because a proper application of the modern principle of interpretation leads to the conclusion that the single-date approach applies and s. 178(1)(g)(ii) is unambiguous (C.A. reasons, at para. 19), there is no need to apply the residual presumption for restrictive interpretation of s. 178(1)(g)(ii) as an exception to the fresh start principle.
[109] I therefore agree with the court in Mallory that, while “[i]t is correct to say that exceptions [such as s. 178(1)(g)(ii)] should be interpreted narrowly, . . . that should only be done as a last resort and only if a contextual and purposive interpretation cannot resolve the ambiguity” (para. 81). I also agree with the Quebec Court of Appeal in N.P., which said that [translation] “the general principles of interpretation must first be used before resorting to the rules of exception, where applicable” (para. 42; see also Paulin, at paras. 34-37). To the same effect, this Court in Poonian recently confirmed that the residual presumption of restrictive interpretation in the bankruptcy discharge context under s. 178(1) “does not have primacy over other principles of statutory interpretation that clearly support a particular meaning” (para. 35; see also para. 27).
[110] By contrast, courts adopting the multiple-date approach have incorrectly begun the interpretive process by applying the presumption of restrictive interpretation to s. 178(1)(g), rather than applying it as a residual presumption only if ambiguity remains after applying the modern principle (see Hildebrand, at para. 34; Mortimer, at para. 18; Collins, at para. 17; St. Dennis, at para. 18). These courts have also given undue priority to the fresh start principle as a general purpose of the BIA, rather than considering the specific purposes of s. 178(1)(g), which operates as a deliberate exception to the fresh start principle (see MediaQMI inc. v. Kamel, 2021 SCC 23, [2021] 1 S.C.R. 899, at para. 39; Sullivan, at § 9.02; M. Mancini, “The Purpose Error in the Modern Approach to Statutory Interpretation” (2022), 59 Alta. L. Rev. 919, at pp. 920-22 and 926-31). As this Court has noted, “the overarching purpose of a legislative scheme informs, but need not be the decisive factor in the interpretation of a particular provision within that scheme (R. v. Rafilovich, 2019 SCC 51, [2019] 3 S.C.R. 838, at para. 30 (emphasis in original)).
[111] The residual presumption of restrictive interpretation therefore has no role to play in interpreting s. 178(1)(g)(ii). At paras 51-107 the court walks through the statutory interpretation of BIA s.178(1)(g) regarding the non-discharge of student loans, which is useful for it's review of the history and purpose of the student loan systems.
. Piekut v. Canada (National Revenue)
In Piekut v. Canada (National Revenue) (SCC, 2025) the Supreme Court of Canada dismissed an insolvency appeal, here involving "when a bankrupt is released from their government student loan debts under the Bankruptcy and Insolvency Act".
Here the court summarizes this case:[1] This appeal raises a question of statutory interpretation as to when a bankrupt is released from their government student loan debts under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”).
[2] Section 178(2) of the BIA provides that an order of discharge releases a bankrupt from all claims provable in bankruptcy, except for claims listed in s. 178(1). Specifically, s. 178(1)(g)(ii) provides that an order of discharge does not release the bankrupt from any debt or obligation in respect of a government student loan where the date of the bankruptcy occurred “within seven years after the date on which the bankrupt ceased to be a full- or part-time student”. Section 178 also applies to consumer proposals, which provide a quicker, more efficient, and less costly alternative to bankruptcy for individuals under certain circumstances. The question raised on this appeal is: When does a bankrupt cease to be a full- or part-time student under s. 178(1)(g)(ii)?
[3] This question has divided courts across Canada. The courts of Quebec and British Columbia, including the Court of Appeal for British Columbia in this case, interpret s. 178(1)(g)(ii) according to a “single date” approach. Under this approach, there can be only one date on which the bankrupt ceased to be a student: the last date the bankrupt ceased to be a student before the date of bankruptcy. Section 178(1)(g)(ii) prevents a bankrupt from being discharged of a student loan debt if the bankrupt was a student within seven years before the date of bankruptcy (Quebec (Attorney General) v. N.P., 2011 QCCA 726; Damache (Syndic de), 2012 QCCA 2014; Mallory, Re, 2015 BCSC 5, 19 C.B.R. (6th) 195).
[4] By contrast, judges in Newfoundland and Labrador and Ontario, and registrars in bankruptcy in Nova Scotia, Saskatchewan, and New Brunswick, interpret s. 178(1)(g)(ii) according to a “multiple date” approach.[1] Under this approach, there can be several dates on which the bankrupt ceased to be a student, corresponding to the end dates of the bankrupt’s various programs of study (Canada (Attorney General) v. Collins, 2013 NLCA 17, 334 Nfld. & P.E.I.R. 318; St. Dennis v. Ontario (Ministry of Training, Colleges & Universities), 2017 ONSC 2417, 48 C.B.R. (6th) 122; McNutt (Bankrupt), Re, 2008 NSSC 166, 266 N.S.R. (2d) 180; Goulding (Re), 2020 NSSC 22, 76 C.B.R. (6th) 154; Hildebrand (Bankrupt), Re, 2010 SKQB 321, 360 Sask. R. 128; Mortimer (Bankrupt), Re, 2012 NBQB 109, 386 N.B.R. (2d) 195). The multiple-date approach releases many more bankrupts from student loan debts in bankruptcy or under consumer proposals than the single-date approach.
[5] 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. 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.
[6] Because the appellant, Ms. Izabela Piekut, was a full- or part-time student until 2009 and filed a consumer proposal only four years later, in 2013, she could not be released from her student loan debt by s. 178(1)(g)(ii) and (2) of the BIA.
[7] The appellant also raises a new legal issue for the first time before this Court. She claims that a creditor must obtain a separate court order regarding their claim under s. 178(1)(g) before the claim is enforceable. I disagree. Student loan debts arise under legislation, are easily proved, and fall under s. 178(1)(g) without requiring a separate court order.
[8] I would dismiss the appeal.
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